SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended
March 31,or
For the transition period from
toCommission file number: 001-34475
OMEROS CORPORATION
(Exact name of registrant as specified in its charter)
| | |
Washington | | 91-1663741 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number) |
| | |
201 Elliott Avenue West Seattle, Washington | | 98119 |
(Address of principal executive offices) | | (Zip Code) |
(206) 676-5000 (Registrant’s telephone number, including area code) |
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). Yes
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 | | ◻ |
Non-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
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 or the(the Securities Act,Act) and Section 21E of the Securities Exchange Act of 1934 or the(the Exchange Act,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 information currently available to our management. 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,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would,” “target,” 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 expectations |
● | our estimates regarding how long our existing cash, cash equivalents, short-term investments and revenues will be sufficient to fund our anticipated operating expenses, capital expenditures and debt service obligations; |
● | our expectations relating to demand for OMIDRIA from wholesalers, ambulatory surgery centers |
● | the severity and duration of the impact of COVID-19 on our business, operations, clinical programs and financial results; |
● | our plans for the marketing and distribution of OMIDRIA and our estimates of OMIDRIA chargebacks and rebates, distribution fees and product returns; |
● | our expectations regarding the clinical, therapeutic and competitive benefits and importance of OMIDRIA and our product candidates; |
● | our ability to design, initiate and/or successfully complete clinical trials and other studies for our products and product candidates and our plans and expectations regarding our ongoing or planned clinical trials, including for our lead MASP-2 inhibitor, narsoplimab (also referred to as OMS721), and for our other investigational candidates, including OMS527 and OMS906; |
● | with respect to our narsoplimab clinical programs, our expectations regarding: whether enrollment in any or all ongoing and planned Phase 3 and Phase 2 clinical trials will proceed as expected; whether we can capitalize on the financial and regulatory incentives provided by orphan drug designations granted by the U.S. Food and Drug Administration (FDA), the European Commission (EC), or the European Medicines Agency (EMA); and whether we can capitalize on the regulatory incentives provided by fast-track and/or breakthrough therapy designations granted by the FDA; |
● | our expectations regarding clinical plans and anticipated or potential paths to regulatory approval of narsoplimab by the FDA and/or EMA in hematopoietic stem cell transplant-associated thrombotic microangiopathy (HSCT-TMA), Immunoglobulin A (IgA) nephropathy, and atypical hemolytic uremic syndrome (aHUS); |
● | whether and when we will complete the rolling Biologics License Application (BLA) for narsoplimab in HSCT-TMA and whether and when FDA will accept submission and grant accelerated or regular approval; |
● | whether and when a BLA may be filed with the FDA for narsoplimab in any other indication and whether FDA will grant accelerated or regular approval; |
● | whether and when a marketing authorization application (MAA) may be filed with the EMA for narsoplimab in any indication, and whether the EMA 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 we will rely on contract manufacturers to manufacture OMIDRIA for commercial sale and to manufacture our product candidates for purposes of clinical supply and in anticipation of potential commercialization; |
● | our ability to raise additional capital through the capital markets or through one or more corporate partnerships, equity offerings, debt financings, collaborations, licensing arrangements or asset sales; |
● | our expectations about the commercial competition that OMIDRIA and our product candidates, if commercialized, face or may face; |
● | the expected course and costs of existing claims, legal proceedings and administrative actions, our involvement in 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, products and product 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 or SEC.(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 materially differ 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 MARCH 31, 2019
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| | Condensed Consolidated Statements of Operations and Comprehensive Loss | 6 |
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| | 8 | |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 | |
| 28 | ||
| 28 | ||
29 | |||
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| 32 | ||
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33 |
ITEM 1. FINANCIAL STATEMENTS
OMEROS CORPORATION
(In thousands, except share and per share data)
(unaudited)
March 31, 2019 | December 31, 2018 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 4,054 | $ | 5,861 | |||
Short-term investments | 43,168 | 54,637 | |||||
Receivables, net | 24,718 | 22,818 | |||||
Inventory | 736 | 88 | |||||
Prepaid expense and other assets | 4,195 | 6,463 | |||||
Total current assets | 76,871 | 89,867 | |||||
Property and equipment, net | 4,479 | 3,845 | |||||
Right of use assets | 17,514 | — | |||||
Restricted investments | 1,154 | 1,154 | |||||
Advanced payments, non-current | 1,228 | 1,070 | |||||
Total assets | $ | 101,246 | $ | 95,936 | |||
Liabilities and shareholders’ deficit | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 7,121 | $ | 6,281 | |||
Accrued expenses | 34,823 | 30,186 | |||||
Current portion of lease liabilities | 2,561 | 889 | |||||
Total current liabilities | 44,505 | 37,356 | |||||
Lease liabilities, non-current | 26,578 | 1,578 | |||||
Unsecured convertible senior notes, net | 151,182 | 148,981 | |||||
Deferred rent | — | 8,177 | |||||
Commitments and contingencies (Note 8) | |||||||
Shareholders’ deficit: | |||||||
Preferred stock, par value $0.01 per share, 20,000,000 shares authorized; none issued and outstanding at March 31, 2019 and December 31, 2018. | — | — | |||||
Common stock, par value $0.01 per share, 150,000,000 shares authorized at March 31, 2019 and December 31, 2018; 49,022,428 and 49,011,684 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively. | 490 | 490 | |||||
Additional paid-in capital | 552,961 | 549,479 | |||||
Accumulated deficit | (674,470 | ) | (650,125 | ) | |||
Total shareholders’ deficit | (121,019 | ) | (100,156 | ) | |||
Total liabilities and shareholders’ deficit | $ | 101,246 | $ | 95,936 |
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2020 |
| 2019 | ||
Assets | | | |
| |
|
Current assets: |
| |
|
| |
|
Cash and cash equivalents | | $ | 7,118 | | $ | 3,084 |
Short-term investments | |
| 46,862 | |
| 57,704 |
Receivables, net | |
| 24,117 | |
| 35,185 |
Inventory | |
| 1,211 | |
| 1,147 |
Prepaid expense and other assets | |
| 6,303 | |
| 6,625 |
Total current assets | |
| 85,611 | |
| 103,745 |
Property and equipment, net | |
| 3,355 | |
| 3,829 |
Right of use assets | | | 27,081 | | | 27,082 |
Restricted investments | |
| 1,154 | |
| 1,154 |
Advanced payments, non-current | |
| 1,013 | |
| 1,159 |
Total assets | | $ | 118,214 | | $ | 136,969 |
| | | | | | |
Liabilities and shareholders’ deficit | |
|
| |
|
|
Current liabilities: | |
|
| |
|
|
Accounts payable | | $ | 12,960 | | $ | 5,328 |
Accrued expenses | |
| 41,379 | |
| 46,627 |
Current portion of lease liabilities | |
| 3,597 | |
| 3,504 |
Total current liabilities | |
| 57,936 | |
| 55,459 |
Lease liabilities, non-current | |
| 31,396 | |
| 32,318 |
Unsecured convertible senior notes, net | |
| 160,746 | |
| 158,213 |
Commitments and contingencies (Note 8) | |
|
| |
|
|
Shareholders’ deficit: | |
|
| |
|
|
Preferred stock, par value $0.01 per share, 20,000,000 shares authorized; NaN issued and outstanding at March 31, 2020 and December 31, 2019. | |
| — | |
| — |
Common stock, par value $0.01 per share, 150,000,000 shares authorized at March 31, 2020 and December 31, 2019; 54,507,667 and 54,200,810 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively. | |
| 545 | |
| 542 |
Additional paid-in capital | |
| 631,233 | |
| 625,048 |
Accumulated deficit | |
| (763,642) | |
| (734,611) |
Total shareholders’ deficit | |
| (131,864) | |
| (109,021) |
Total liabilities and shareholders’ deficit | | $ | 118,214 | | $ | 136,969 |
See accompanying Notes to Condensed Consolidated Financial Statements
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(In thousands, except share and per share data)
(unaudited)
Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
Revenue: | |||||||
Product sales, net | $ | 21,779 | $ | 1,588 | |||
Costs and expenses: | |||||||
Cost of product sales | 131 | 203 | |||||
Research and development | 26,255 | 18,140 | |||||
Selling, general and administrative | 14,632 | 10,934 | |||||
Total costs and expenses | 41,018 | 29,277 | |||||
Loss from operations | (19,239 | ) | (27,689 | ) | |||
Interest expense | (5,600 | ) | (2,825 | ) | |||
Other income | 494 | 460 | |||||
Net loss | $ | (24,345 | ) | $ | (30,054 | ) | |
Comprehensive loss | $ | (24,345 | ) | $ | (30,054 | ) | |
Basic and diluted net loss per share | $ | (0.50 | ) | $ | (0.62 | ) | |
Weighted-average shares used to compute basic and diluted net loss per share | 49,014,009 | 48,284,019 |
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2020 |
| 2019 | ||
Revenue: | | | | | | |
Product sales, net | | $ | 23,537 | | $ | 21,779 |
| | | | | | |
Costs and expenses: | |
|
| |
|
|
Cost of product sales | |
| 267 | |
| 131 |
Research and development | |
| 28,911 | |
| 26,255 |
Selling, general and administrative | |
| 18,036 | |
| 14,632 |
Total costs and expenses | |
| 47,214 | |
| 41,018 |
Loss from operations | |
| (23,677) | |
| (19,239) |
Interest expense | |
| (5,903) | |
| (5,600) |
Other income | |
| 549 | |
| 494 |
Net loss | | $ | (29,031) | | $ | (24,345) |
Comprehensive loss | | $ | (29,031) | | $ | (24,345) |
Basic and diluted net loss per share | | $ | (0.53) | | $ | (0.50) |
Weighted-average shares used to compute basic and diluted net loss per share | |
| 54,299,813 | |
| 49,014,009 |
See accompanying Notes to Condensed Consolidated Financial Statements
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OMEROS CORPORATION
(In thousands)
(unaudited)
Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
Operating activities: | |||||||
Net loss | $ | (24,345 | ) | $ | (30,054 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
Stock-based compensation expense | 3,374 | 2,966 | |||||
Non-cash interest expense | 2,201 | 1,086 | |||||
Depreciation and amortization | 377 | 223 | |||||
Changes in operating assets and liabilities: | |||||||
Receivables | (1,900 | ) | 16,962 | ||||
Inventory | (648 | ) | 196 | ||||
Prepaid expenses and other assets | 2,110 | (840 | ) | ||||
Accounts payable and accrued expenses | 5,883 | (1,835 | ) | ||||
Net cash used in operating activities | (12,948 | ) | (11,296 | ) | |||
Investing activities: | |||||||
Purchases of property and equipment | (182 | ) | (183 | ) | |||
Purchases of investments | (281 | ) | (270 | ) | |||
Proceeds from the sale and maturities of investments | 11,750 | 9,000 | |||||
Net cash provided by investing activities | 11,287 | 8,547 | |||||
Financing activities: | |||||||
Proceeds upon exercise of stock options and warrants | 108 | 687 | |||||
Payments on finance lease liabilities | (254 | ) | (143 | ) | |||
Net cash provided by (used in) financing activities | (146 | ) | 544 | ||||
Net decrease in cash and cash equivalents | (1,807 | ) | (2,205 | ) | |||
Cash and cash equivalents at beginning of period | 5,861 | 3,394 | |||||
Cash and cash equivalents at end of period | $ | 4,054 | $ | 1,189 | |||
Supplemental cash flow information | |||||||
Cash paid for interest | $ | 82 | $ | 1,739 | |||
Conversion of accrued interest to notes payable | $ | — | $ | 838 |
| | | | | | |
| | Three Months Ended March 31, | ||||
|
| 2020 |
| 2019 | ||
Operating activities: | | | | | | |
Net loss | | $ | (29,031) | | $ | (24,345) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | |
|
|
Stock-based compensation expense | |
| 3,476 | |
| 3,374 |
Non-cash interest expense | |
| 2,533 | |
| 2,201 |
Depreciation and amortization | |
| 402 | |
| 377 |
Changes in operating assets and liabilities: | |
| | |
|
|
Receivables | |
| 11,068 | |
| (1,900) |
Inventory | |
| (64) | |
| (648) |
Prepaid expenses and other assets | |
| 628 | |
| 2,110 |
Accounts payable and accrued expenses | |
| 1,847 | |
| 5,883 |
Net cash used in operating activities | |
| (9,141) | |
| (12,948) |
Investing activities: | |
|
| |
|
|
Purchases of property and equipment | |
| (66) | |
| (182) |
Purchases of investments | |
| (3,176) | |
| (281) |
Proceeds from the sale and maturities of investments | |
| 14,018 | |
| 11,750 |
Net cash provided by investing activities | |
| 10,776 | |
| 11,287 |
Financing activities: | |
|
| |
|
|
Proceeds upon exercise of stock options | |
| 2,712 | |
| 108 |
Principal payments on finance lease liabilities | |
| (313) | |
| (254) |
Net cash provided by (used in) financing activities | |
| 2,399 | |
| (146) |
Net increase (decrease) in cash and cash equivalents | |
| 4,034 | |
| (1,807) |
Cash and cash equivalents at beginning of period | |
| 3,084 | |
| 5,861 |
Cash and cash equivalents at end of period | | $ | 7,118 | | $ | 4,054 |
| | | | | | |
Supplemental cash flow information | |
|
| |
|
|
Cash paid for interest | | $ | 89 | | $ | 82 |
Property acquired under finance lease | | $ | 22 | | $ | — |
See accompanying Notes to Condensed Consolidated Financial Statements
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1—Organization and Significant Accounting Policies
Organization
We are a commercial-stage biopharmaceutical company committed to discovering, developing and commercializing small-molecule and protein therapeutics for large-market as well as orphan indications targeting inflammation, complement-mediated diseases, disorders of the central nervous system, and immune-related diseases, including cancers. Our first drug product, OMIDRIA, is marketed in the United States (U.S.) for use during cataract surgery or intraocular lens replacement.
Basis of Presentation
Our condensed consolidated financial statements include the financial position and results of operations of Omeros Corporation (Omeros) and our wholly owned subsidiaries. All inter-company transactions have been eliminated and we have determined we operate in one1 segment. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The information as of
The accompanying unaudited condensed consolidated financial statements and related notes thereto should be read in conjunction with the audited consolidated financial statements and related notes thereto that are included in our Annual Report on Form 10-K for the year ended December 31, 2018,2019, which was filed with the U.S. Securities and Exchange Commission (SEC) on March 1, 2019.2, 2020.
Risks and Uncertainties Related to COVID-19
In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, China and has since spread around the world. On March 11, 2020, the World Health Organization (WHO) declared the outbreak of COVID-19 a global pandemic. The COVID-19 outbreak and the response of governmental authorities to try to limit it are having a significant impact on our business. On March 18, 2020, The American Academy of Ophthalmology issued a letter recommending that all ophthalmologists immediately cease providing any treatment other than urgent or emergent care. Upon this recommendation the ambulatory surgery centers (ASCs) and hospitals using OMIDRIA postponed nearly all cataract surgery. Consequently, our sales of OMIDRIA to our wholesalers have been minimal following the announcement. In early May, a large number of states began re-opening ASCs and hospitals to cataract surgery, and we have had facilities in at least 36 states initiate re-ordering of OMIDRIA from our wholesalers. The COVID-19 pandemic could have a continuing adverse impact on our business, operations and financial results, including through sustained limitations on cataract surgery and corresponding reduction in demand for OMIDRIA, disruptions in commercial sales activities, higher than normal volume of OMIDRIA product returns, delays or disruptions with respect to manufacturing of clinical or commercial supply, delays in our clinical trials or in the submission or review of regulatory applications, as well as a deterioration of general economic conditions. Due to the unknown magnitude, duration and outcome of the COVID-19 pandemic, it is not possible to estimate precisely its impact on our business, operations or financial results; however, the impact could be material.
Going Concern Discussion
As of March 31, 2020, we had cash, cash equivalents and short-term investments of $54.0 million and an accounts receivable-based line of credit that allows us to borrow up to $50.0 million depending on our eligible accounts receivable
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borrowing base. We have incurred losses from operations of $23.7 million and $63.4 million for the three months ended March 31, 2020, and the year ended December 31, 2019, respectively. Cash used in operating activities was $9.1 million and $60.1 million for the three months ended March 31, 2020, and the year ended December 31, 2019, respectively. We will continue to advance a series of clinicalincur losses from operations as revenues exceed operating costs and preclinical programs (including three programs currently in Phase 3). CMS granted transitional pass-through reimbursement status for OMIDRIA from January 1, 2015 through December 31, 2017 for patients covered by Medicare Part B. On October 1, 2018, debt service obligations.
OMIDRIA pass-through reimbursement was reinstated for a two-year periodis scheduled to end on September 30, 2020 and quarterlyour first quarter 2020 sales of OMIDRIA net sales returned to historical levels. We believewere negatively affected by the COVID-19 pandemic. As such, we cannot predict future OMIDRIA sales will continue to grow in 2019; however,revenues due to the recent re-introductionuncertain impact of these circumstances on sales of OMIDRIA in 2020 and beyond. Similarly, we cannot predict with precision the extent of growth in OMIDRIA revenues in 2019. As a result, despite our significant historical growth in OMIDRIA sales, meaningful growth in OMIDRIA sales in 2019 and beyond are not includedunable to include in the determination regarding our prospects as a going concern. Similarly, we are unable to include in the determinationconcern amounts available under our accounts receivable-based line of credit or any proceeds from debt transactions or other financing instruments despite our successful track record in accessing capital through these avenues. We also have not included any potential partnerships related to our products or product candidates. Regardless of whether we secure continued passthrough payment for OMIDRIA, our working capital needs will likely continue to increase, particularly if the disruption to our operations caused by the COVID-19 pandemic continues. The conditions described above, when evaluated within the constraints of the accounting literature, raise substantial doubt with respect to our ability to meet our obligations through May 9, 202011, 2021 and, therefore, to continue as a going concern.
We plan to continue to fund our operations through proceeds from sales of OMIDRIA and, ifin addition, we may utilize funds available under our accounts receivable-based line of credit, which allows us to borrow up to 85% of our available accounts receivable borrowing base or $50 million, whichever is less. Should it be necessary throughor determined to be strategically advantageous, we also could pursue debt financings, public and private offerings of our equity securities similar to those we have completed previously, and/or other revenue sources and financial instruments as noted above.strategic transactions, which may include licensing a portion of our existing technology. If these capital sources, for any reason, are needed but inaccessible, it would have a significantly negative effect on our financial condition. Should it be necessary to manage our operating expenses, we would reduce our projected cash requirements through reduction of our expenses by delaying clinical trials, reducing selected research and development efforts, and/or implementing other restructuring activities.
The accompanying consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to our ability to continue as a going concern.
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 revenue recognition, stock-based compensation expense and accruals for clinical trials, manufacturing of drug product and clinical drug supply and other contingencies. We base our estimates on historical experience and on various other factors, including the impact of the COVID-19 pandemic, that we believe are reasonable under the circumstances; however, actual results could differ from these estimates.
Revenue Recognition
When we enter into a customer contract, we perform the following five steps: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation.
We generally record revenue from product sales when the product is delivered to our wholesalers. Product sales are recorded net of wholesaler distribution fees and estimated chargebacks, rebates, returns and purchase-volume discounts. Accruals or allowances are established for these deductions in the same period when revenue is recognized, and actual amounts incurred are offset against the applicable accruals or allowances. We reflect each of these accruals or
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allowances as either a reduction in the related accounts receivable or as an accrued liability depending on how the amount is expected to be settled.
Right-of-Use Assets and Related Lease Liabilities
We record operating leases on our Consolidated Balance Sheet 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.
Advance Payments
Advance payments for goods or services that will be used or rendered for future research and development activities are deferred and then recognized as an expense as the related goods are delivered or the services are performed, or when the goods or services are no longer expected to be provided.
Stock-Based Compensation
Stock-based compensation expense is recognized for all share-based payments made to employees, directors and non-employees based on estimated fair values as of the date of grant. The fair value of our stock options is calculated using the Black-Scholes option-pricing model which requires judgmental assumptions including volatility, forfeiture rates and expected option life. We use the straight-line method to allocate stock-based compensation cost to reporting periods over each optionee’s requisite service period, which is generally the vesting period.
Recently Adopted
In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13,
Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and dilutive common share equivalents outstanding for the period, determined using the treasury-stock method. Common share equivalents are excluded from the diluted net loss per share computation if their effect is anti-dilutive.
The basic and diluted net loss per share amounts for the three months ended March 31, 20192020 and 20182019 were computed based on the shares of common stock outstanding during the respective periods. Potentially dilutive securities excluded from the diluted loss per share calculation are as follows:
| | | | |
| | March 31, | ||
|
| 2020 |
| 2019 |
Outstanding options to purchase common stock | | 12,591,341 |
| 11,840,521 |
Outstanding warrants to purchase common stock | | 243,115 |
| 243,115 |
Total potentially dilutive shares excluded from loss per share | | 12,834,456 |
| 12,083,636 |
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March 31, | |||||
2019 | 2018 | ||||
Outstanding options to purchase common stock | 11,840,521 | 9,640,452 | |||
Outstanding warrants to purchase common stock | 243,115 | 100,602 | |||
Total potentially dilutive shares excluded from loss per share | 12,083,636 | 9,741,054 |
Accounts Receivable, net
Accounts receivable, net consist of the following:
March 31, 2019 | December 31, 2018 | ||||||
(In thousands) | |||||||
Trade receivables, net | $ | 24,580 | $ | 22,654 | |||
Sublease and other receivables | 138 | 164 | |||||
Total accounts receivables, net | $ | 24,718 | $ | 22,818 |
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2020 |
| 2019 | ||
| | (In thousands) | ||||
Trade receivables, net | | $ | 24,011 | | $ | 35,074 |
Sublease and other receivables | |
| 106 | |
| 111 |
Total accounts receivables, net | | $ | 24,117 | | $ | 35,185 |
Trade receivables are shown net of $0.4$4.1 million and $0.4$1.6 million of chargeback and product return allowances as of March 31, 20192020 and December 31, 2018,2019, respectively.
Inventory
Inventory consists of the following:
March 31, 2019 | December 31, 2018 | ||||||
(In thousands) | |||||||
Raw materials | $ | 43 | $ | 83 | |||
Work-in-progress | 392 | — | |||||
Finished goods | 301 | 5 | |||||
Total inventory | $ | 736 | $ | 88 |
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2020 |
| 2019 | ||
| | (In thousands) | ||||
Raw materials |
| $ | 91 |
| $ | 91 |
Work-in-progress | |
| 394 | |
| 338 |
Finished goods | |
| 726 | |
| 718 |
Total inventory |
| $ | 1,211 |
| $ | 1,147 |
Property and Equipment, Net
Property and equipment, net consists of the following:
March 31, 2019 | December 31, 2018 | ||||||
(In thousands) | |||||||
Finance leases | $ | 4,863 | $ | 4,034 | |||
Laboratory equipment | 2,717 | 2,569 | |||||
Computer equipment | 896 | 862 | |||||
Office equipment and furniture | 625 | 625 | |||||
Total cost | 9,101 | 8,090 | |||||
Less accumulated depreciation and amortization | (4,622 | ) | (4,245 | ) | |||
Total property and equipment, net | $ | 4,479 | $ | 3,845 |
| | | | | | |
|
| March 31, |
| December 31, | ||
| | 2020 | | 2019 | ||
| | (In thousands) | ||||
Finance leases | | $ | 5,496 | | $ | 5,474 |
Laboratory equipment | |
| 2,750 | |
| 2,844 |
Computer equipment | |
| 921 | |
| 921 |
Office equipment and furniture | |
| 625 | |
| 625 |
Total cost | |
| 9,792 | |
| 9,864 |
Less accumulated depreciation and amortization | |
| (6,437) | |
| (6,035) |
Total property and equipment, net | | $ | 3,355 | | $ | 3,829 |
For both the three months ended March 31, 20192020 and 2018,2019, depreciation and amortization expenses were $0.4 million and $0.2 million, respectively.million.
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Accrued expenses consist of the following:
March 31, 2019 | December 31, 2018 | ||||||
(In thousands) | |||||||
Contract research and development | $ | 14,460 | $ | 12,012 | |||
Sales rebates, fees and discounts | 8,161 | 8,075 | |||||
Employee compensation | 2,233 | 2,714 | |||||
Consulting and professional fees | 3,344 | 3,669 | |||||
Interest payable | 4,995 | 1,677 | |||||
Clinical trials | 913 | 820 | |||||
Other accrued expenses | 717 | 1,219 | |||||
Total accrued expenses | $ | 34,823 | $ | 30,186 |
| | | | | | |
|
| March 31, |
| December 31, | ||
| | 2020 | | 2019 | ||
| | (In thousands) | ||||
Contract research and development | | $ | 19,318 | | $ | 24,107 |
Sales rebates, fees and discounts | |
| 8,785 | |
| 10,870 |
Interest payable | |
| 4,921 | |
| 1,640 |
Consulting and professional fees | |
| 3,337 | |
| 3,610 |
Employee compensation | |
| 2,772 | |
| 3,546 |
Clinical trials | |
| 1,468 | |
| 1,982 |
Other accrued expenses | |
| 778 | |
| 872 |
Total accrued expenses | | $ | 41,379 | | $ | 46,627 |
As of March 31, 2019,2020, and December 31, 2018,2019, all investments were classified as short-term and available-for-sale on the accompanying Condensed Consolidated Balance Sheets. Investment income, which was included as a component of other income, consists of interest earned.
On a recurring basis, we measure certain financial assets at fair value. 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 measured at fair value on a recurring basis are as follows:
| | | | | | | | | | | | |
|
| March 31, 2020 | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
| | (In thousands) | ||||||||||
Assets: | | | | | | | | | | | | |
Money-market funds classified as non-current restricted investments | | $ | 1,154 | | $ | — | | $ | — | | $ | 1,154 |
Money-market funds classified as short-term investments | |
| 46,862 | |
| — | |
| — | |
| 46,862 |
Total | | $ | 48,016 | | $ | — | | $ | — | | $ | 48,016 |
| | | | | | | | | | | | |
|
| December 31, 2019 | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
| | (In thousands) | ||||||||||
Assets: | | |
|
| |
|
| |
|
| |
|
Money-market funds classified as non-current restricted investments | | $ | 1,154 | | $ | — | | $ | — | | $ | 1,154 |
Money-market funds classified as short-term investments | |
| 57,704 | |
| — | |
| — | |
| 57,704 |
Total | | $ | 58,858 | | $ | — | | $ | — | | $ | 58,858 |
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March 31, 2019 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
(In thousands) | |||||||||||||||
Assets: | |||||||||||||||
Money-market funds classified as non-current restricted cash and investments | $ | 1,154 | $ | — | $ | — | $ | 1,154 | |||||||
Money-market funds classified as short-term investments | 43,168 | — | — | 43,168 | |||||||||||
Total | $ | 44,322 | $ | — | $ | — | $ | 44,322 |
December 31, 2018 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
(In thousands) | |||||||||||||||
Assets: | |||||||||||||||
Money-market funds classified as non-current restricted cash and investments | $ | 1,154 | $ | — | $ | — | $ | 1,154 | |||||||
Money-market funds classified as short-term investments | 54,637 | — | — | 54,637 | |||||||||||
Total | $ | 55,791 | $ | — | $ | — | $ | 55,791 |
Cash held in demand deposit accounts of $4.1$7.1 million and $5.9$3.1 million is excluded from our fair-value hierarchy disclosure as of
See “Note 6--Convertible Senior Notes” for the carrying amount and estimated fair value of our 6.25% Convertible Senior Notes due 2023.
Note 5—Notes Payable
Line of Credit
We have a term loan agreement with CRG Servicing LLC (the CRG Loan) and, in November 2016, borrowed $80.0 million. In May 2018, we borrowed the remaining $45.0 million available under the CRG Loan and issued warrants to purchaseSecurity Agreement with Silicon Valley Bank, which provides for a $50.0 million revolving line of credit facility (the Line of Credit Agreement). Under the Line of Credit Agreement, we may draw, on a revolving basis, up to 200,000 sharesthe lesser of $50.0 million and 85.0% of our common stock with an exercise priceeligible accounts receivable, less certain reserves. Interest on amounts outstanding is payable monthly at the greater of $23.00 per share.5.5% and the prime rate. The warrants have a five-year termline of credit is secured by all our assets excluding intellectual property and remained outstanding as of March 31, 2019.
As of March 31, 20192020 and December 31, 20182019, we did not have any notes payable outstanding.
We have $210.0 million aggregate principal amount of our 6.25% Convertible Senior Notes due 2023 (the Convertible Notes). The Convertible Notes are unsecured and accrue interest at an annual rate of 6.25% per annum, payable semi-annually in arrears on May 15 and November 15 of each year, beginningyear. The Convertible Notes mature on MayNovember 15, 2019.
The Convertible Notes will be convertible into cash, shares of our common stock or a combination thereof, as we elect at our sole discretion. The initial conversion rate is 52.0183 shares of our common stock per $1,000 of note principal (equivalent to an initial conversion price of approximately $19.22 per share of common stock), subject to adjustment in certain circumstances. To reduce the dilutive impact or potential cash expenditure associated with conversion of the Convertible Notes, we entered into a capped call transaction which essentially covers the number of shares of our common stock underlying the Convertible Notes when our common stock is trading between the initial conversion price of $19.22 per share and $28.84 per share. As of March 31, 2019,2020, all Convertible Notes remain outstanding.
The balance of our Convertible Notes at March 31, 20192020 and December 31, 2018,2019, is as follows:
March 31, 2019 | December 31, 2018 | ||||||
(In thousands) | |||||||
Principal amount | $ | 210,000 | $ | 210,000 | |||
Unamortized discount | (54,130 | ) | (56,156 | ) | |||
Unamortized issuance costs attributable to principal amount | (4,688 | ) | (4,863 | ) | |||
Total Convertible Notes, net | $ | 151,182 | $ | 148,981 |
| | | | | |
| March 31, | | December 31, | ||
| 2020 |
| 2019 | ||
| (In thousands) | ||||
Principal amount | $ | 210,000 | | $ | 210,000 |
Unamortized discount |
| (45,329) | |
| (47,660) |
Unamortized issuance costs attributable to principal amount |
| (3,925) | |
| (4,127) |
Total Convertible Notes, net | $ | 160,746 | | $ | 158,213 |
The estimated fair value of the Convertible Notes see Part II, Item 8, Note 8 - “Convertible Senior Notes” in our Annual Report on Form 10-Kat March 31, 2020, as determined through consideration of quoted market prices, was $190.1 million. The fair value is classified as Level 3 due to the limited trading activity for the year ended December 31, 2018.Convertible Notes.
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We have operating leases related to our office and laboratory space in The Omeros Building. The initial term of the leases is through November 2027 and we have two options to extend the lease term, each by five years. We have finance leases for certain laboratory and office equipment, that have lease terms expiring through December 2021.
Classification on the Balance Sheet | March 31, 2019 | |||||
Assets | (In thousands) | |||||
Operating lease assets | Right of use assets | $ | 17,514 | |||
Finance lease assets | Property and equipment, net | 3,413 | ||||
Total lease assets | $ | 20,927 | ||||
Liabilities | ||||||
Current: | ||||||
Operating Leases | Current portion of lease liabilities | $ | 1,415 | |||
Finance Lease | Current portion of lease liabilities | 1,146 | ||||
Non-current: | ||||||
Operating | Lease liability, non-current | 24,683 | ||||
Finance | Lease liability, non-current | 1,895 | ||||
Total lease liabilities | $ | 29,139 | ||||
Weighted-average remaining lease term | ||||||
Operating leases | 8.6 years | |||||
Finance leases | 2.9 years | |||||
Weighted-average discount rate | ||||||
Operating leases (1) | 12.85 | % | ||||
Finance leases | 12.31 | % |
| | | | | |
| March 31, | | December 31, | ||
| 2020 |
| 2019 | ||
| (In thousands) | ||||
Assets | | | | | |
Operating lease assets | $ | 27,081 |
| $ | 27,082 |
Finance lease assets, net |
| 2,638 | |
| 2,973 |
Total lease assets | $ | 29,719 |
| $ | 30,055 |
| | | | | |
Liabilities | | | | | |
Current: | | | | | |
Operating leases | $ | 2,391 |
| $ | 2,282 |
Finance leases |
| 1,206 | |
| 1,222 |
Non-current: | | | | | |
Operating leases |
| 30,125 | |
| 30,772 |
Finance leases |
| 1,271 | |
| 1,546 |
Total lease liabilities | $ | 34,993 |
| $ | 35,822 |
The components of total lease costscost are as follows:
Three Months Ended March 31, 2019 | |||
(In thousands) | |||
Lease cost | |||
Operating lease cost | $ | 1,031 | |
Finance lease cost: | |||
Amortization | 290 | ||
Interest | 82 | ||
Short-term lease cost | 138 | ||
Variable lease costs | 486 | ||
Sublease income | (224 | ) | |
Total lease cost | $ | 1,803 |
| | | | | |
| Three Months Ended | ||||
| March 31, | ||||
| 2020 |
| 2019 | ||
| (In thousands) | ||||
Lease cost | |
|
| |
|
Operating lease cost | $ | 1,509 | | $ | 1,031 |
Finance lease cost: |
|
| |
|
|
Amortization |
| 357 | |
| 290 |
Interest |
| 89 | |
| 82 |
Short-term lease cost |
| — | |
| 138 |
Variable lease cost |
| 542 | |
| 486 |
Sublease income |
| (293) | |
| (224) |
Total lease cost | $ | 2,204 | | $ | 1,803 |
The supplemental cash flow information related to leases during 2019 is as follows:
| | | | | |
| Three Months Ended | ||||
| March 31, | ||||
| 2020 |
| 2019 | ||
| (In thousands) | ||||
Cash paid for amounts included in the measurement of lease liabilities | | | | | |
Operating cash flows used for operating leases | $ | 2,136 | | $ | 1,647 |
Operating cash flows used for finance leases | $ | 89 |
| $ | 82 |
Financing cash flows used for finance leases | $ | 313 |
| $ | 254 |
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Cash paid for amounts included in the measurement of lease liabilities: | |||
Operating cash flows from operating leases | $ | 1,647 | |
Operating cash flows from finance leases | $ | 82 | |
Financing cash flows from finance leases | $ | 254 |
Operating Leases | Finance Leases | ||||||
(In thousands) | |||||||
2019 | $ | 3,499 | $ | 1,060 | |||
2020 | 4,770 | 1,224 | |||||
2021 | 4,880 | 866 | |||||
2022 | 4,995 | 290 | |||||
2023 | 5,112 | 95 | |||||
Thereafter | 20,728 | — | |||||
Total undiscounted lease payments | $ | 43,984 | $ | 3,535 | |||
Less interest | (17,886 | ) | (494 | ) | |||
Lease liabilities | $ | 26,098 | $ | 3,041 |
Note 8—Commitments and Contingencies
Contracts
We have various agreements with third parties that would collectively require payment of termination fees totaling $13.7$17.6 million if we had cancelled the work as of March 31, 2019 if we cancel the work within specific time frames, either prior to commencing or during performance of the contracted services.
Development Milestones and Product Royalties
We have licensed a variety of intellectual property from third parties that we are currently developing or may develop in the future. These licenses may require milestone payments during the clinical development processes as well as low single to low double-digit royalties on the net income or net sales of the product. For the three months ended March 31, 20192020 and the year ended December 31, 2018,2019, development milestones incurred were immaterial and we didinsignificant. We do not owe any royalties.
Common Stock
For the three months ended March 31, 2020, we received proceeds of $2.7 million upon the exercise of stock options which resulted in the issuance of 306,857 shares of common stock. For the three months ended March 31, 2019, we received proceeds of $0.1 million upon the exercise of stock options which resulted in the issuance of 10,744 shares of common stock. For the three months ended
As of March 31, 2018,2020 and December 31, 2019, we received proceeds of $0.7 million upon the exercise of stock options andhad 243,115 warrants which resulted in the issuance of 75,616 shares of common stock.
Interim Condensed Consolidated Statements of Shareholders’ Deficit
The changes in interim balances of the components of our shareholders’ deficit are as follows:
| | | | | | | | | | | | |
| | | | | Additional | | | | | | | |
| | Common | | Paid-In | | Accumulated | | | | |||
|
| Stock |
| Capital |
| Deficit | | Total | ||||
| | | (In thousands) | |||||||||
Balance January 1, 2020 | | $ | 542 | | $ | 625,048 | | $ | (734,611) | | $ | (109,021) |
Exercise of stock options | | | 3 | | | 2,709 | | | — | | | 2,712 |
Stock-based compensation expense | | | — | | | 3,476 | | | — | | | 3,476 |
Net loss | | | — | | | — | | | (29,031) | | | (29,031) |
Balance March 31, 2020 | | $ | 545 | | $ | 631,233 | | $ | (763,642) | | $ | (131,864) |
| | | | | | | | | | | | |
| | | | | Additional | | | | | | | |
| | Common | | Paid-In | | Accumulated | | | | |||
|
| Stock |
| Capital |
| Deficit | | Total | ||||
| | | (In thousands) | |||||||||
Balance January 1, 2019 | | $ | 490 | | $ | 549,479 | | $ | (650,125) | | $ | (100,156) |
Exercise of stock options | | | — | | | 108 | | | — | | | 108 |
Stock-based compensation expense | | | — | | | 3,374 | | | — | | | 3,374 |
Net loss | | | — | | | — | | | (24,345) | | | (24,345) |
Balance March 31, 2019 | | $ | 490 | | $ | 552,961 | | $ | (674,470) | | $ | (121,019) |
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Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
(In thousands) | |||||||
Beginning and ending common stock | $ | 490 | $ | 483 | |||
Beginning additional paid-in capital | $ | 549,479 | $ | 520,071 | |||
Exercise of stock options | 108 | 687 | |||||
Stock-based compensation expense | 3,374 | 2,966 | |||||
Ending additional paid-in capital | $ | 552,961 | $ | 523,724 | |||
Beginning accumulated deficit | $ | (650,125 | ) | $ | (523,368 | ) | |
Net loss | (24,345 | ) | (30,054 | ) | |||
Ending accumulated deficit | $ | (674,470 | ) | $ | (553,422 | ) |
Stock-based compensation expense includes the amortization of stock options granted to employees and non-employees and has been reported in our Condensed Consolidated Statements of Operations and Comprehensive Lossis as follows:
Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
(In thousands) | |||||||
Research and development | $ | 1,494 | $ | 1,200 | |||
Selling, general and administrative | 1,880 | 1,766 | |||||
Total | $ | 3,374 | $ | 2,966 |
| | | | | | |
|
| Three Months Ended | ||||
| | March 31, | ||||
|
| 2020 |
| 2019 | ||
| | (In thousands) | ||||
Research and development | | $ | 1,447 | | $ | 1,494 |
Selling, general and administrative | |
| 2,029 | |
| 1,880 |
Total | | $ | 3,476 | | $ | 3,374 |
The fair value of each option grant to employees, directors and non-employees 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 March 31, | |||||||
2019 | 2018 | ||||||
Estimated weighted-average fair value | $ | 9.47 | $ | 9.79 | |||
Weighted-average assumptions | |||||||
Expected volatility | 81 | % | 76 | % | |||
Expected term, in years | 6.0 | 6.1 | |||||
Risk-free interest rate | 2.48 | % | 2.54 | % | |||
Expected dividend yield | — | % | — | % |
| | | | |
| | Three Months Ended | ||
| | March 31, | ||
| | 2020 | ||
Estimated weighted-average fair value | | $ | 7.89 | |
Weighted-average assumptions: | |
| | |
Expected volatility | |
| 76 | % |
Expected term, in years | |
| 6.0 | |
Risk-free interest rate | |
| 1.18 | % |
Expected dividend yield | |
| — | % |
Stock option activity for all stock plans and related information is as follows:
Options Outstanding | Weighted- Average Exercise Price per Share | Remaining Contractual Life (In years) | Aggregate Intrinsic Value (In thousands) | |||||||||
Balance at December 31, 2018 | 10,313,138 | $ | 11.22 | |||||||||
Granted | 1,606,500 | 13.49 | ||||||||||
Exercised | (10,744 | ) | 10.01 | |||||||||
Forfeited | (68,373 | ) | 14.67 | |||||||||
Balance at March 31, 2019 | 11,840,521 | $ | 11.51 | 6.62 | $ | 71,857 | ||||||
Vested and expected to vest at March 31, 2019 | 11,402,367 | $ | 11.41 | 6.53 | $ | 70,182 | ||||||
Exercisable at March 31, 2019 | 7,815,290 | $ | 10.31 | 5.35 | $ | 56,232 |
| | | | | | | | | | |
|
| |
| Weighted- |
| |
| | | |
| | | | Average | | | | Aggregate | ||
| | | | Exercise | | Remaining | | Intrinsic | ||
| | Options | | Price per | | Contractual Life | | Value | ||
| | Outstanding | | Share | | (In years) | | (In thousands) | ||
Balance at December 31, 2019 |
| 11,207,931 | | $ | 11.72 |
|
|
| |
|
Granted |
| 1,744,585 | |
| 11.95 |
|
|
| |
|
Exercised |
| (306,857) | |
| 8.84 |
|
|
| |
|
Forfeited |
| (54,318) | |
| 15.04 |
|
|
| |
|
Balance at March 31, 2020 |
| 12,591,341 | | $ | 11.81 |
| 6.4 | | $ | 26,173 |
Vested and expected to vest at March 31, 2020 |
| 12,116,956 | | $ | 11.75 |
| 6.3 | | $ | 25,838 |
Exercisable at March 31, 2020 |
| 8,261,407 | | $ | 11.03 |
| 5.0 | | $ | 23,067 |
At March 31, 2019,2020, there were 4,025,2304.3 million unvested options outstanding that will vest over a weighted-average period of 9.12.9 years and 554,0833.7 million shares were available to grant. The total estimated compensation expense yet to be recognized on our unvestedoutstanding options is $15.6$32.9 million.In March 2020, annual stock option grants totaling approximately 1.6 million shares with an exercise price of $11.91 per share were granted to all eligible employees. The options vest monthly on a straight-line basis over four years.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q.
Overview
We are a commercial-stage biopharmaceutical company committed to discovering, developing and commercializing small-molecule and protein therapeutics for large-market as well as orphan indications targeting inflammation, complement-mediated diseases, disorders of the central nervous system, and immune-related diseases, including cancers.
Our drug product OMIDRIA
® is marketed in the United States for use during cataract surgery or intraocular lensImpact of Global Pandemic
The COVID-19 outbreak and the response of governmental authorities to try to limit its spread are having a significant impact on our programs,business. On March 18, 2020, The American Academy of Ophthalmology issued a letter recommending that all ophthalmologists immediately cease providing any treatment other than urgent or emergent care. Upon this recommendation the ASCs and hospitals using OMIDRIA postponed nearly all cataract surgery. Consequently, our sales of OMIDRIA to our wholesalers have been minimal following the announcement, including throughout April. In early May, a large number of states began re-opening ASCs and hospitals to cataract surgery, and we have retained controlhad facilities in at least 36 states initiate re-ordering of allOMIDRIA from our wholesalers. The COVID-19 pandemic could have a continuing adverse impact on our business, operations and financial results, including through sustained limitation on cataract surgery and corresponding reduction in demand for OMIDRIA, disruptions in commercial rights.
Commercial Product - OMIDRIA
® (phenylephrine and ketorolac intraocular solution) 1%/0.3%OMIDRIA is approved by the FDA for use during cataract surgery or IOLintraocular lens replacement to maintain pupil size by preventing intraoperative miosis (pupil constriction) and to reduce postoperative ocular pain. Outside of the U.S., we have received approval from the European Commission or EC,(“EC”) to market OMIDRIA in the European Economic Area or EEA,(“EEA”) for use during cataract surgery and other IOL replacement procedures for maintenance of intraoperative mydriasis (pupil dilation), prevention of intraoperative miosis and reduction of acute postoperative ocular pain.
OMIDRIA is a proprietary drug product containing two active pharmaceutical ingredients, or APIs:ingredients: ketorolac, an anti-inflammatory agent, and phenylephrine, a mydriatic, or pupil dilating, agent. Cataract and other lens replacement surgery involves replacement of the original lens of the eye with an artificial intraocular lens. These procedures are typically performed to replace a lens opacified by a cataract and/or to correct a refractive error. OMIDRIA is added to standard irrigation solution used during cataract and lens replacement surgery and is delivered intracamerally, or within the
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anterior chamber of the eye, to the site of the surgical trauma throughout the procedure. Preventing pupil constriction is essential for these procedures and, if miosis occurs, the risk of damaging structures within the eye and other complications increases, as does the operating time required to perform the procedure.
We launched OMIDRIA in the U.S. in the second quarter of 2015 and sell OMIDRIA primarily through wholesalers which, in turn, sell to ASCsambulatory surgery centers (“ASCs”) and hospitals. The Centers for Medicare & Medicaid Services or CMS,(“CMS”), the federal agency responsible for administering the Medicare program, granted transitional pass-through reimbursement status for OMIDRIA in 2014, effective from January 1, 2015 through December 31, 2017. Pass-through status allows for separate payment (i.e., outside the packaged payment rate for the surgical procedure) under Medicare Part B. In March 2018, the Consolidated Appropriations Act of 2018, or the Appropriations Act, was signed into law. The Appropriations Act includes a provision by which Congress extended pass-through reimbursement status for a small number of drugs, including OMIDRIA, used during procedures performed on Medicare Part B fee-for-service patients for an additional two years, running from October 1, 2018 until October 1,through September 30, 2020.
We also continue to pursue permanent separate reimbursement for OMIDRIA. InOMIDRIA beyond the 2019 final rulecurrently scheduled expiration of pass-through reimbursement. CMS is required under the Substance Use–Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act to review payments under its CMS’ outpatient prospective payment system or(“OPPS”) for opioids and evidence-based non-opioid alternatives for pain management with a goal to ensure that there are not financial incentives to use opioids instead of non-opioid alternatives. In its 2020 OPPS proposed rule, CMS indicatednoted that in the ASC setting, it will separately pay for certain non-opioid drugs used during surgery that have an FDA-approved indicationare indicated for postoperativereduction of post-operative pain reliefmay warrant separate payment if there is evidence to show packaged payment presents a demonstrated barrier to access for such drugs and are currently packagedthat such drugs help to deter or avoid prescription opioid use and addiction. Although Omeros provided CMS with the procedure in calendar year 2019. Although OMIDRIA is not specifically named becauseevidence that it currently is paid separately, we believebelieves shows that OMIDRIA meets this definition and would qualify forthese criteria, CMS declined in its 2020 OPPS final rule to confirm separate payment under this provision ifto OMIDRIA beyond the expiration of its current pass-through status on September 30, 2020. CMS also noted in the 2020 OPPS final rule that it is continued in subsequent years. The OPPS Final Rule also states that CMS will consider in future rule-making a policy that pays separately for drugs used during cataract surgery that have an FDA-approved indicationcontinue to address postoperative issues.analyze evidence and monitor utilization of OMIDRIA. We believe that OMIDRIA also meets this definition. We are continuingcontinue to confirm these beliefsgenerate evidence and intend to pursue othercontinue pursuing administrative and legislative avenues ofto secure permanent separate payment or similar reimbursement for OMIDRIA beyond September 30, 2020 but2020; however, we cannot provide assurance that these efforts will be successful. We also continue to pursue expansion of reimbursement for OMIDRIA by Medicare Advantage and other third-party payers. For more information regarding OMIDRIA reimbursement, see “Results of Operations”“Financial Summary” below.
In July 2018, we reported thatplaced OMIDRIA had been placed on the market in the European Union or EU,(“EU”), on a limited basis, which maintained the ongoing validity of the European marketing authorization for OMIDRIA. Decisions about price and reimbursement for OMIDRIA are made on a country-by-country basis and may be required before marketing may occur in a particular country. At this time, we do not expect to see significant sales of OMIDRIA in any countries within the EEA or
Clinical Development Programs
Our clinical stage development programs include:
● | MASP-2 - narsoplimab (OMS721) - Lectin Pathway Disorders. Narsoplimab, also referred to as OMS721, |
We have completed our pivotal clinical trial for narsoplimab in HSCT-TMA, and Phase 3 clinical programs are underwayin process for narsoplimab in: hematopoietic stem cell transplant-associated thrombotic microangiopathy, or HSCT-TMA; Immunoglobulin A, orin IgA nephropathy;nephropathy and atypical hemolytic uremic syndrome, or aHUS. In addition, we have an ongoing Phase 2 clinical trial evaluating narsoplimab in renal diseases, currently focused on patients with IgA nephropathy.
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Narsoplimab has received multiple designations from the FDA and from the EMA across the three current indications. These include:
● | HSCT-TMA: In the U.S., the FDA has granted narsoplimab (1) breakthrough therapy designation in patients who have persistent TMA despite modification of immunosuppressive therapy, (2) orphan drug designation for the prevention (inhibition) of complement-mediated TMAs, and (3) orphan drug designation for the treatment of HSCT-TMA. The EC also granted narsoplimab a designation as an orphan medicinal product for treatment in hematopoietic stem cell transplantation. |
● | IgA nephropathy: In the U.S., narsoplimab has received from the FDA (1) breakthrough therapy designation for the treatment of IgA nephropathy and (2) orphan drug designation in IgA nephropathy. In Europe, narsoplimab has received from the EC designation as an orphan medicinal product for the treatment of primary IgA nephropathy. |
● | aHUS: In the U.S., narsoplimab has received from the FDA (1) fast-track designation for the treatment of patients with aHUS and (2) orphan drug designation for the prevention (inhibition) of complement-mediated thrombotic microangiopathies. |
In October 2019, we initiated the U.S., therolling submission to FDA has granted narsoplimab (1) breakthrough therapy designation in patients who have persistent TMA despite modification of immunosuppressive therapy, (2) orphan drug designation for the prevention (inhibition) of complement-mediated TMAs, and (3) orphan drug designation for the treatment of HSCT-TMA. The EC also granted narsoplimab a designation as an orphan medicinal product for treatment in hematopoietic stem cell transplantation.
On March 2, 2020, we reported clinical data from our pivotal trial of narsoplimab in HSCT-TMA. We have already appliedThe single-arm, open-label trial included safety and efficacy endpoints that were previously agreed to with FDA. These endpoints were assessed for (1) all 28 patients who received at least one dose of narsoplimab and (2) patients who received the protocol-specified dosing of at least four weeks of narsoplimab.
The primary efficacy endpoint in the trial was the proportion of patients who achieved designated “responder” status based on improvement in HSCT-TMA laboratory markers and clinical status. This is referred to as the “complete response rate.” The primary laboratory markers that were evaluated were platelet count and lactate dehydrogenase (“LDH”), levels, while improvement in clinical status was evaluated based on organ function and transfusions. Patients who did not fully meet these criteria were considered “non-responders.”
The FDA-agreed efficacy threshold for the primary endpoint is a complete response rate of 15%. Among patients who received at least one dose of narsoplimab, the complete response rate was 54% (p<0.0001), while the complete response rate among patients who received the protocol-specified narsoplimab treatment of at least four weeks of dosing was 65% (p<0.0001).
Secondary endpoints in the trial were survival rates and change from baseline in HSCT-TMA laboratory markers. Among the responder population, 93% of patients survived for at least 100 days following HSCT-TMA diagnosis, while 83% of patients who received treatment for at least four weeks and 68% of the total treated population achieved this endpoint. Results also included statistically significant improvements in platelet count, LDH and haptoglobin. The treated population had multiple high-risk features that portend a poor outcome, including the persistence of HSCT-TMA despite modification of immunosuppression (which was a criterion for entry into the trial), graft-versus-host disease, significant infections, non-infectious pulmonary complications and neurological findings. Patients in the trial had a high expected mortality rate, with 93% of
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them having multiple risk factors. The most common adverse events observed in the trial were nausea, vomiting, diarrhea, hypokalemia, neutropenia and fever, which are all common in stem-cell transplant patients. Six deaths occurred during the trial. These were due to sepsis, progression of the underlying disease, and graft-versus-host disease. All of these are common causes of death in this patient population.
In Europe, EMA has confirmed narsoplimab’s eligibility tofor EMA’s centralized review procedure, which allows submission of a single MAA that, if approved, authorizes the product to be marketed in all EU member states and EEA countries rather than requiring separate national approvals.countries. We are finalizingplan to complete the submission of an MAA after our Pediatric Investigational PlanBLA submission has been filed with FDA. In October 2019 we received a positive opinion from EMA on our pediatric investigation plan (“PIP”) for narsoplimab in Europe, which isthe treatment of HSCT-TMA. A PIP outlining a development program for the investigational product in the pediatric population must be agreed with EMA as a prerequisite for submissionto EMA’s acceptance of an MAA. The narsoplimab PIP provides a study plan to evaluate the safety and effectiveness of the MAA as we continue preparationsdrug for U.S. BLA and European MAA submissions.HSCT-TMA in patients from one month through 17 years of age. We were also notified by FDA that FDA and EMA heldreceived a joint meeting at which harmonizationdeferral for completion of our PIP until after approval of the pediatric development of narsoplimab for stem-cell TMA was specifically discussed.
In our IgA nephropathy program, patient enrollment continues in the narsoplimab Phase 3 clinical trial, ARTEMIS-IGAN. The single Phase 3 trial design is a randomized, double-blind, placebo-controlled multicenter trial in patients at least 18 years of age with biopsy-confirmed IgA nephropathy and with 24-hour urine protein excretion greater than one gram per day at baseline on optimized renin‑angiotensinrenin-angiotensin system or RAS, blockade. This trial includes a run-in period. Initially, patients are expected to receive an IV dose of study drug each week for 12 weeks; additional weekly dosing can be administered to achieve optimal response. The primary endpoint, which we believe could suffice for full or accelerated approval depending on the effect size, is reduction in proteinuria at 36 weeks after the start of dosing. The trial is designed to allow intra-trial adjustment in sample size. For the purposes of safety and efficacy assessments, the initial sample size for the proteinuria endpoint is estimated at 140 patients in each of the treatment and placebo groups. This will include a subset of patients with high levels of proteinuria (i.e., equal to or greater than 2 g/day) at baseline, and a substantial improvement at 36 weeks in this subset of patients alone could potentially form the basis for approval. We believe that the trial design will allow assessment for either full or accelerated approval at 36 weeks based on proteinuria results either (1) across the general population of study patients or (2) in the high-proteinuria subset of patients.
The Phase 3 clinical program in patients with aHUS, in which patient enrollment is ongoing, consists of one Phase 3 clinical trial – a single-arm (
i.e., no control arm), open-label trial in patients with newly diagnosed or ongoing aHUS. This trial is targeting approximately 40 patients for full approval in Europe and accelerated approval in the U.S. with approximately 80 total patients required by FDA for full approval in the U.S.● | PDE7 - OMS527. In our phosphodiesterase 7 (PDE7) program, we are developing proprietary compounds to treat addiction and compulsive disorders as well as movement disorders. In September 2019 we reported positive results from our Phase 1 single-ascending- and multiple-ascending-dose clinical trial designed to assess safety, tolerability and pharmacokinetics of our lead compound in healthy subjects. |
In our phosphodiesterase 7, or PDE7, program,the double blind, randomized Phase 1 study, the study drug, referred to as OMS182399, met the primary endpoints of safety and tolerability and showed a favorable and dose-proportional pharmacokinetic profile supporting once-daily dosing. There was no apparent food effect on plasma exposure to OMS182399. Our focus is nicotine addiction, and we are developing proprietary compounds to treat addiction and compulsive disorders as well as movement disorders. Aplanning our Phase 1 single-ascending- and multiple-ascending-dose clinical trial is underway and is designed to assess safety and pharmacokinetics of our lead compound in healthy subjects. We have completed dosing in all six cohorts in the single-ascending-dose portion of the trial, including a cohort to assess whether pharmacokinetics is affected by food. Dosing in three cohorts in the multiple-ascending-dose portion of the trial also recently completed. The compound to date has been well tolerated and pharmacokinetic data support once-daily dosing, with or without food. Completion of the Phase 1 trial is expected in the second or third quarter of 2019. Following Phase 1 completion, if successful, we plan to conduct a Phase 2a study targeting nicotine addiction.
Preclinical Development Programs and Platforms
Our preclinical programs and platforms include:
● | MASP-3 - OMS906 - Alternative Pathway Disorders. As part of our MASP program, we have identified mannan-binding lectin-associated serine protease-3 (“MASP-3”), which has been shown to be the key activator of the complement system’s alternative pathway (“APC”), and we believe that we are the first to make this and related discoveries associated with the APC. The complement system is part of the immune system’s innate response, and the APC is considered the amplification loop within the complement system. MASP-3 is |
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responsible for the conversion of pro-factor D to factor D; converted factor D is necessary for the activation of the APC. Based on our alternative pathway-related discoveries, we have expanded our intellectual property position to protect our inventions stemming from these discoveries beyond MASP-2-associated inhibition of the lectin pathway to include inhibition of the alternative pathway. Our current primary focus in this program is developing MASP-3 inhibitors for the treatment of disorders related to the APC. We believe that MASP-3 inhibitors have the potential to treat patients suffering from a wide range of diseases and conditions, including: paroxysmal nocturnal hemoglobinuria (“PNH”); C3 glomerulopathy; multiple sclerosis; arthritis; traumatic brain injury; neuromyelitis optica; pauci-immune necrotizing crescentic glomerulonephritis; disseminated intravascular coagulation; age-related macular degeneration; asthma; dense deposit disease; Bechet’s disease; aspiration pneumonia; TMA; ischemia-reperfusion injury; Guillain Barre syndrome; Alzheimer’s disease; amylotrophic lateral sclerosis; systemic lupus erythematosus; diabetic retinopathy; uveitis; chronic obstructive pulmonary disease; transplant rejection; acute respiratory distress syndrome; antineutrophil cytoplasmic antibody-associated vasculitis; anti-phospholipid syndrome; atherosclerosis; myasthenia gravis and others. Our OMS906 monoclonal antibody program has generated positive data in a well-established animal model associated with PNH, as well as strong pharmacodynamic activity in non-human primates. The program has also generated positive data in a well-established animal model of arthritis. In preparation for clinical trials, we have completed the first-in-human-enabling toxicology studies, and the manufacturing scale-up process is underway to support the remainder of the development program. We are currently targeting PNH as the first clinical indication for OMS906 and plan to submit a clinical trial application in the first half of 2020. |
● | Other MASP Inhibitor Preclinical Programs. We have generated positive preclinical data from MASP-2 inhibition in in vivo models of age-related macular degeneration, myocardial infarction, diabetic neuropathy, stroke, ischemia-reperfusion injury, and other diseases and disorders. We are also developing a longer-acting second generation antibody targeting MASP-2, which we are targeting for initiation of clinical trials in 2022. This program is designated as “OMS1029.” Development efforts are also directed to a small-molecule inhibitor of MASP-2 designed for oral administration, as well as small-molecule inhibitors of MASP-3 and biospecific small- and large-molecule inhibitors of MASP-2/-3. |
● | GPR174 and GPCR Platform. We have developed a proprietary cellular redistribution assay which we use in a high-throughput manner to identify synthetic ligands, including antagonists, agonists and inverse agonists, that bind to and affect the function of orphan GPCRs. We have screened Class A orphan GPCRs against our small-molecule chemical libraries using the cellular redistribution assay and have identified and confirmed compounds that interact with 54 of the 81 Class A orphan GPCRs linked to a wide range of indications including cancer as well as metabolic, cardiovascular, immunologic, inflammatory and central nervous system disorders. One of our priorities in this program is GPR174, which is involved in the modulation of the immune system. In ex vivo human studies, our small-molecule inhibitors targeting GPR174 upregulate the production of cytokines, block multiple checkpoints and tumor promoters, and suppress regulatory T-cells. Based on our data, we believe that GPR174 controls a major pathway in cancer and modulation of the receptor could provide a seminal advance in immuno-oncologic treatments for a wide range of tumors. Our studies in mouse models of melanoma and colon carcinoma found that GPR174-deficiency resulted in significantly reduced tumor growth and improved survival of the animals versus normal mice. Our recent discoveries suggest a new approach to cancer immunotherapy that targets inhibition of GPR174 and can be combined with and significantly improve the tumor-killing effects of adenosine pathway inhibitors. These discoveries include (1) identification of cancer-immunity pathways controlled by GPR174, (2) the identification of phosphatidylserine as a natural ligand for GPR174, (3) a collection of novel small-molecule inhibitors of GPR174 and (4) a synergistic enhancement of “tumor-fighting” cytokine production by T cells following the combined inhibition of both GPR174 and the adenosine pathway (e.g., A2A and/or A2B), another key metabolic pathway that regulates tumor immunity. We continue to focus on GPR174 and several other of our GPCR targets with the objective of moving compounds targeting them into human trials. |
Financial Summary
We recognized net losses of the complement system’s alternative pathway, or APC. We believe that we are the first to make this$29.0 million and related discoveries associated with the APC. The complement system is part of the immune system’s innate response, and the APC is considered the amplification loop within the complement system. MASP-3 is responsible$24.3 million for the conversion of pro-
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2020, we had $54.0 million in cash and cash equivalents and short-term investments available for procedures involving patients covered by Medicare Part B. Separate reimbursement payment for OMIDRIA was restored effective October 1, 2018 through September 30, 2020 as a result of securing a two-year extension of pass-through reimbursement status forgeneral corporate use of OMIDRIA during procedures performed on Medicare Part B fee-for-service patients. See “Commercial Product - OMIDRIA” earlierand $24.1 million in this section for additional details regarding the pass-through reimbursement status for OMIDRIA.
We expect our net losses will continue until such time as we derive sufficient revenues from sales of OMIDRIA and/or other sources, such as licensing, product sales and other revenues from our product candidates, that are sufficient to cover our operating expenses capital expenditures and debt service obligations.
*Fiscal quarters without pass-through reimbursement.
During the period from January 1, 2018 to September 30, 2018, OMIDRIA was not reimbursed separately when used for procedures involving patients covered by Medicare Part B and our revenues decreased significantly. After reinstatement of March 31, 2019,separate reimbursement for OMIDRIA in 4Q 2018, our revenues quickly returned to levels when separate reimbursement was available and quarter-over-quarter revenue growth approximated historical rates. In Q1 2020, OMIDRIA revenues declined due to the impact of COVID-19 on the volume of cataract surgery being performed.
Pass-through status for OMIDRIA is scheduled to expire on September 30, 2020. If we had $47.2 millionare unable to obtain permanent separate or similar reimbursement for OMIDRIA, the net revenues we receive for OMIDRIA would be reduced, potentially by a significant amount. Although we expect to pursue an alternative sales strategy if we are unable to obtain permanent separate or similar reimbursement for OMIDRIA, we may face difficulties or delays in cashimplementing such a strategy and, cash equivalentseven if successfully implemented, we cannot predict whether or to what extent our customers would increase their utilization of OMIDRIA. See “Commercial Product - OMIDRIA” earlier in this section for additional details regarding the pass-through reimbursement status for OMIDRIA.
Due to the ongoing impact of COVID-19 on OMIDRIA sales and short-term investments available for general corporate use and $24.7 million in accounts receivable,the scheduled expiration of pass-through status on September 30, 2020, we are unable to predict future OMIDRIA product sales, net.
Results of Operations
Revenue
Our revenue consists of OMIDRIA product sales to ambulatory surgery centers, or ASCs and hospitals in the U.S. Our product sales, net during the three months ended March 31, 2020 and 2019 are as follows:
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2020 |
| 2019 | ||
| | (In thousands) | ||||
Product sales, net | | $ | 23,537 | | $ | 21,779 |
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Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
(In thousands) | |||||||
Product sales, net | $ | 21,779 | $ | 1,588 |
During the three months ended March 31, 2019,2020, OMIDRIA revenue was $21.8$23.5 million as compared to $1.6$21.8 million for the three months ended March 31, 2018.2019. The increase in revenue during the three months ended March 31, 20192020 compared to the same period in prior year was due to significantly increased demand for OMIDRIA by ASCs and hospitals following the reinstatement of transitional pass-through reimbursement status for OMIDRIA on October 1, 2018.
Gross-to-Net Deductions
We record OMIDRIA product sales net of estimated chargebacks, rebates, distribution fees and product returns. These deductions are generally referred to as gross-to-net deductions. Our total gross-to-net provision for the three months ended March 31, 20192020 was 27.0%32.3% of gross OMIDRIA product sales. This compares to 28.9%27.0% for the three months ended March 31, 2018.2019. The primary reason for the decreaseincrease in gross-to-net deductions as a percentage of sales is due to reduced chargebacks partially offset by increased rebates under our volume-purchase discount program. We expect our gross-to net deductions will increase slightly from the three months ended March 31, 2019 during the remainder of 2019.
A summary of our gross-to-net related accruals for the three months ended March 31, 20192020 is as follows:
Chargebacks and Rebates | Distribution Fees and Product Return Allowances | Total | |||||||||
(In thousands) | |||||||||||
Balance as of December 31, 2018 | $ | 7,015 | $ | 1,485 | $ | 8,500 | |||||
Provisions | 6,828 | 1,246 | 8,074 | ||||||||
Payments | (6,903 | ) | (1,119 | ) | (8,022 | ) | |||||
Balance as of March 31, 2019 | $ | 6,940 | $ | 1,612 | $ | 8,552 |
| | | | | | | | | |
|
| | |
| Distribution |
| | | |
| | | | | Fees and | | | | |
| | | | | Product | | | | |
| | Chargebacks | | Return | | | | ||
| | and Rebates | | Allowances | | Total | |||
| | (In thousands) | |||||||
Balance as of December 31, 2019 | | $ | 10,240 | | $ | 2,237 | | $ | 12,477 |
Provisions | |
| 7,563 | | | 3,675 | | | 11,238 |
Payments | |
| (9,556) | | | (1,266) | | | (10,822) |
Balance as of March 31, 2020 | | $ | 8,247 | | $ | 4,646 | | $ | 12,893 |
Chargebacks and Rebates
We record a provision for estimated chargebacks and rebates at the time we recognize OMIDRIA product sales revenue and reduce the accrual when payments are made or credits are granted. Our chargebacks are related to a pharmaceutical pricing agreement, a Federalfederal supply schedule agreement, a 340B prime vendor agreement, and a Medicaid drug rebate agreement.agreement and an off-invoice discount to our ASC and hospital customers. We also record a provision for estimated rebates for our OMIDRIAssure
Distribution Fees and Product Return Allowances
We pay our wholesalers a distribution fee for services they perform for us based on the dollar value of their purchases of OMIDRIA. We record a provision for these charges as a reduction to revenue at the time of sale to the wholesaler and make payments to our wholesalers based on contractual terms.
We allow for the return of product up to 12 months past its expiration date, or for product that is damaged or not used by our customers. We record a provision for returns upon sale of OMIDRIA to our wholesaler. When a return or claim is received, we issue a credit memo to the wholesaler against its outstanding receivable to us or we reimburse the customer. For the three months ended March 31, 2020, as noted above, we recorded a $2.5 million return allowance for return of OMIDRIA product from wholesalers and ASCs related to the postponement of cataract surgeries due to the COVID-19 pandemic. Additionally, should pass-through reimbursement expire on September 30, 2020, it is possible
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that wholesalers, ASCs and hospitals may return a portion of their OMIDRIA on hand for a full refund of the purchase price. If a reserve is required, we would record the reserve during our third quarter of 2020.
Research and Development Expenses
Our research and development expenses can be divided into three categories: direct external expenses, which include clinical research and development, 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 product candidate, contract research organizations, or CROs, clinical trial sites, collaborators, consultants, and lab supplies.licensors consultants. Costs are reported in preclinical research and development until the program enters the clinic. Internal, overhead and other expenses consist of personnel costs, overhead costs such as rent, utilities and depreciation and other miscellaneous costs. We do not generally allocate our internal resources, employees and infrastructure to any individual research project because we deploy them across multiple clinical and preclinical projects that we are advancing in parallel.
The following table illustrates our expenses associated with these activities:
Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
(In thousands) | |||||||
Direct external expenses: | |||||||
Clinical research and development: | |||||||
MASP-2 Program - OMS721 (narsoplimab) | $ | 14,437 | $ | 7,929 | |||
OMIDRIA - Ophthalmology | 708 | 609 | |||||
PDE7 - OMS527 | 991 | — | |||||
Other clinical programs | 375 | 210 | |||||
Total clinical research and development | 16,511 | 8,748 | |||||
Preclinical research and development | 726 | 1,632 | |||||
Total direct external expenses | 17,237 | �� | 10,380 | ||||
Internal, overhead and other expenses | 7,524 | 6,560 | |||||
Stock-based compensation expense | 1,494 | 1,200 | |||||
Total research and development expenses | $ | 26,255 | $ | 18,140 |
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2020 |
| 2019 | ||
| | (In thousands) | ||||
Direct external expenses: | | | | | | |
Clinical research and development: |
| |
|
| |
|
MASP-2 Program - OMS721 (narsoplimab) | | $ | 13,215 | | $ | 14,437 |
OMIDRIA - Ophthalmology | |
| 626 | |
| 708 |
PDE7 - OMS527 | |
| 1,337 | |
| 576 |
Total clinical research and development | |
| 15,178 | |
| 15,721 |
Preclinical research and development | |
| 3,515 | |
| 1,516 |
Total direct external expenses | |
| 18,693 | |
| 17,237 |
Internal, overhead and other expenses | |
| 8,771 | |
| 7,524 |
Stock-based compensation expense | |
| 1,447 | |
| 1,494 |
Total research and development expenses | | $ | 28,911 | | $ | 26,255 |
Direct external expenses increased $1.5 million for the three months ended March 31, 2020 compared to the same period in 2019. This increase is due primarily to higher IgA nephropathy clinical trial costs offset by lower narsoplimab manufacturing cost. In the first quarter of 2019 we acquired raw materials used in the manufacturing of our drug substance validation batches that concluded later in the year 2019. The $6.9$2.0 million increase in direct externalour preclinical research and development expense for the three months ended March 31, 2020 as compared to the same period in 2019 reflects addition third-party manufacturing scale up costs related to our OMS906 program as well as development and analytical activities related our MASP-2 long-acting second-generation antibody program.
The increases in internal, overhead and other expenses for the three months ended March 31, 2019,2020 compared to the sameprior year period in 2018, was due primarily to higher third-party manufacturing scale-up costs for our narsoplimab program as we continue to increase our production capacity to meet anticipated clinical and commercial requirements, and the inclusion of clinical costs associated with the initiation of a Phase 1 clinical trial for OMS527, our PDE7 program for addiction and compulsive disorders. The decline in direct external expenses related to our preclinical development expense reflects the advancement of OMS527 into clinical research and development while maintaining similar level of expenditures related to our pre-clinical programs.
We expect the majority of our research and development expenses for the remainder of 2019 are anticipated to2020 will be related to our narsoplimab program. We expect research and development costs to increase throughout 2019in 2020 as we continue our Phase 3 clinical programs for narsoplimab and incur incremental manufacturing scale-up costs and other expenses as we continue preparationsin preparation for the anticipated submission of marketing applications for narsoplimab in HSCT-TMA and the potential commercializationcommercial launch of narsoplimab in HSCT-TMA in the U.S. and Europe. However, we expect that certain expenses will be variable depending on the timing of manufacturing batches, clinical trial activities and regulatory review of our product candidates and programs.
At this time, we are unable to estimate with certainty the longer-term costs we will incur in the continued development of our product candidates due to the inherently unpredictable nature of our preclinical and clinical development activities.activities as well as the potential impacts of the COVID-19 pandemic. Clinical development timelines, the probability of success and development costs can differ materially as new data become available and as expectations change. Our future research and development expenses will depend, in part, on the preclinical or clinical success of each
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product candidate as well as ongoing assessments of each program’s commercial potential. In addition, we cannot forecast with precision which product candidates, if any, may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.
We are required to expend substantial resources in the development of our product candidates due to the lengthy process of completing clinical trials and seeking regulatory approval. Any failure or delay in completing clinical trials, or in obtaining regulatory approvals, could delay our generation of product revenue and increase our research and development expenses.
Selling, General and Administrative Expenses
Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
(In thousands) | |||||||
Selling, general and administrative expenses, excluding stock-based compensation expense | $ | 12,752 | $ | 9,168 | |||
Stock-based compensation expense | 1,880 | 1,766 | |||||
Total selling, general and administrative expenses | $ | 14,632 | $ | 10,934 |
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2020 |
| 2019 | ||
| | (In thousands) | ||||
Selling, general and administrative expenses, excluding stock-based compensation expense | | $ | 16,007 | | $ | 12,752 |
Stock-based compensation expense | |
| 2,029 | |
| 1,880 |
Total selling, general and administrative expenses | | $ | 18,036 | | $ | 14,632 |
The increase in selling, general and administrative expenses during the three months ended March 31, 20192020 compared to the same period in 20182019 was primarily due to increased pre-commercialization marketing activities for narsoplimab, sales and marketingincluding employee-related costs related to the re-introduction of OMIDRIA, fees related to patent applications, consulting and professional service fees, and employee-related costs. The change in stock-based compensation is primarily due to timing of employee stock grants.
We expect that our selling, general and administrative expenses will increase slightly in the remaining quarters of 20192020 compared to current levels, primarily due to increased pre-commercialization activities for narsoplimab.
Interest Expense
Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
(In thousands) | |||||||
Interest expense | $ | 5,600 | $ | 2,825 |
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2020 |
| 2019 | ||
| | (In thousands) | ||||
Interest expense | | $ | 5,903 | | $ | 5,600 |
Interest expense is comprised of interest expense during the three months ended March 31, 2019 comparedrelated to the same periods in the prior year was primarily due to the issuance, in November 2018, ofour $210.0 million aggregate principal amount of our 6.25% Convertible Senior Notes due 2023 or the Convertible Notes.(the “Convertible Notes”). Non-cash interest expense for the three months ended March 31, 2020 and 2019 and 2018 was $2.2$2.5 million and $1.1$2.2 million, respectively. For more information regarding our Convertible Notes, see Part II, Item 8, “Note 8
Financial Condition - Liquidity and Capital Resources
As of March 31, 2019, we generated net losses of $24.3 million and incurred negative cash flows from operations of $12.9 million compared to $30.1 million and $11.3 million, respectively, for the three months ended March 31, 2018. As of
In the first quarter of 2020, our business operations and liquidity were negatively affected by the reduction in this section under “Commercial Product
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In early May, a large number of states began re-opening ASCs and hospitals usingto cataract surgery, and we have had facilities in at least 36 states initiate re-ordering of OMIDRIA in procedures involving patients covered by Medicare Part B.from our wholesalers. However, we cannot yet predict with certainty the levels of OMIDRIA has been grantedproduct sales we will achieve. In addition, pass-through reimbursement throughfor OMIDRIA is currently scheduled to expire on September 30, 2020.
We plan to continue to fund our operations through proceeds from sales of OMIDRIA.OMIDRIA after the postponement of non-urgent ophthalmic surgical procedures, including cataract surgery, ends and, in addition, we may utilize funds available under our receivable-based line of credit to the extent it is available to us. Should it be necessary or determineddetermined to be strategically advantageous, we also could pursue debt financings, public and private offerings of our equity securities similar to those we have completed previously, and/or other strategic transactions, which may include licensing a portion of our existing technology. If these capital sources, for any reason, are needed but inaccessible, it would have a significantly negative effect on our financial condition. Should it be necessary to manage our operating expenses, we would reduce our projected cash requirements through reduction of our expenses by delaying clinical trials, reducing selected research and development efforts, and/or implementing other restructuring activities.
Cash Flow Data
Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
(In thousands) | |||||||
Selected cash flow data | |||||||
Cash provided by (used in): | |||||||
Operating activities | $ | (12,948 | ) | $ | (11,296 | ) | |
Investing activities | 11,287 | 8,547 | |||||
Financing activities | (146 | ) | 544 |
| | | | | | |
| | Three Months Ended March 31, | ||||
|
| 2020 |
| 2019 | ||
| | (In thousands) | ||||
Selected cash flow data | | | | | | |
Cash provided by (used in): | | | | | | |
Operating activities | | $ | (9,141) | | $ | (12,948) |
Investing activities | | $ | 10,776 | | $ | 11,287 |
Financing activities | | $ | 2,399 | | $ | (146) |
Operating Activities.
Net cash used in operating activities for the three months ended March 31,Investing Activities.
Cash flows from investing activities primarily reflect cash used to purchase short-term investments and proceeds from the sale of short-term investments, thus causing a shift between our cash and cash equivalents and short-term investment balances. Because we manage our cash usage with respect to our total cash, cash equivalents and short-term investments, we do not considerNet cash provided by investing activities during the three months ended March 31, 20192020 was $11.3$10.8 million, a changedecrease of approximately $2.7$0.5 million from the $8.5 million net cash provided by investing activities for the same period in 2018. Investments2019 primarily due to investments purchased exceeding investments sold increased by $2.8 million during the three months ended March 31, 2019 compared to the same period in 2018 to provide cash to fund our operations.
Financing Activities.
Net cash-26-
Loan and an increaseSecurity Agreement. Our Loan and Security Agreement with Silicon Valley Bank (the “Loan Agreement”), provides for a $50.0 million revolving line of credit facility. Under the Loan Agreement we may draw, on a revolving basis, up to the lesser of $50.0 million and 85.0% of our eligible accounts receivable, less certain reserves. The Loan Agreement is secured by all our assets excluding intellectual property and development program inventories and matures on August 2, 2022. As of March 31, 2020, we had no outstanding borrowings under the Loan Agreement and we were in principal payments on finance leases.
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, 2018.2019. Other than the following, our future minimum contractual obligations and commitments have not changed materially from the amounts previously reported.
Goods &and Services
We have certain non-cancelable obligations under various other agreements for the acquisition of goods and services associated with the manufacturing of our product candidates that contain firm commitments. As of March 31, 2019,2020, our aggregate firm commitments are $13.7$17.6 million.
We may also be required, in connection with in-licensing or asset acquisition agreements, to make certain royalty and milestone payments and we cannot, at this time, determine when or if the related milestones will be achieved or whether the events triggering the commencement of payment obligations will occur. Therefore, such payments are not included in the amount above.
Lease Agreements
We have operating leases related tolease our office and laboratory space in The Omeros Building.Building under a lease agreement with BMR - 201 Elliott Avenue LLC. The initial term of the leases is throughlease ends in November 2027, and we have two options to extend the lease term, each by five years. We have finance leases for certain laboratory and office equipment that have lease terms expiring through December 2021. On January 1, 2019, we adopted Topic 842
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“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, 2018, except for the adoption ASU 2016-02,
Off-Balance Sheet Arrangements
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is primarily confined to our investment securities and notes payable.securities. The primary objective of our investment activities is to preserve our capital to fund operations. 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
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
March 31,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.
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ITEM 1. LEGAL PROCEEDINGS
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.
ITEM 1A. RISK FACTORS
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, 2018,2019, as filed with the SEC on March 1, 2019.2, 2020. In assessing the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2018,2019, 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 immaterial or by other risks that are not currently known to us. 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 as set forthdescribed in our Annual Report on Form 10-K for the year ended December 31, 2018.2019.
Our ability to achieve profitability is highly dependent on the commercial success of OMIDRIA, and to the extent OMIDRIA is not successful, our business, financial condition and results of operations may be materially adversely affected and the price of our common stock may decline.
OMIDRIA is our only product that has been approved by the FDA, for commercial sale in the U.S. For the three months ended March 31, 2020, we recorded net sales of OMIDRIA of $23.5 million. Revenues from sales of OMIDRIA have not been sufficient to fund our operations fully in prior periods and we cannot provide assurance that revenues from OMIDRIA sales will be sufficient to fund our operations fully in the future. We will need to generate substantially more product revenue from OMIDRIA to achieve and sustain profitability. We may be unable to sustain or increase revenues generated from OMIDRIA product sales for a number of reasons, including:
● | the significant reduction in the volume of ophthalmic surgical procedures and corresponding reduction in demand for OMIDRIA as a result of the COVID-19 pandemic; |
● | the scheduled expiration of pass-through reimbursement on September 30, 2020 and uncertainty regarding the extent of coverage and reimbursement for OMIDRIA when used in Medicare patients after September 30, 2020; |
● | pricing, coverage and reimbursement policies of government and private payers such as Medicare, Medicaid, the U.S. Department of Veterans Affairs, group purchasing organizations, insurance companies, health maintenance organizations and other plan administrators; |
● | a lack of acceptance by physicians, patients and other members of the healthcare community; |
● | the availability, relative price and efficacy of the product as compared to alternative treatment options or branded, compounded or generic competing products; |
● | an unknown safety risk; |
● | the failure to enter into and maintain acceptable partnering arrangements for marketing and distribution of OMIDRIA outside of the U.S.; and |
● | changed or increased regulatory restrictions in the U.S., EU and/or other foreign territories. |
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Any decline in sales from OMIDRIA also would impact our ability to borrow under the Loan Agreement since the amount we can borrow is dependent on our eligible receivables.
The spread of COVID-19 and efforts to reduce its transmission may negatively impact our business, operations and financial results.
The spread of COVID-19 and efforts to reduce its transmission have significantly affected the global economy and have adversely affected our sales of OMIDRIA due to a reduction in the overall volume of cataract surgery and intraocular lens replacement procedures. On March 18, 2020, The American Academy of Ophthalmology issued a letter recommending that all ophthalmologists immediately cease providing any treatment other than urgent or emergent care. Upon this recommendation the ASCs and hospitals using OMIDRIA temporarily postponed nearly all cataract surgery. Consequently, our sales of OMIDRIA have been minimal to our wholesalers following the announcement. In early May, a large number of states began re-opening ASCs and hospitals to cataract surgery, and we have had facilities in at least 36 states initiate re-ordering of OMIDRIA from our wholesalers. The COVID-19 pandemic could have a continuing adverse impact on our business and financial results, including through sustained limitation on cataract surgery and corresponding reduction in demand for OMIDRIA, disruptions in commercial sales activities, higher than normal volume of OMIDRIA product returns, as well as a deterioration of general economic conditions.
We may also experience disruptions to our operations due to COVID-19, such as delays or disruptions with respect to manufacturing of clinical or commercial drug substance or drug product and delays in our clinical trials or in the submission or review of regulatory applications. Such delays or disruptions could negatively affect our commercial operations, clinical programs, and research and development. The health of our employees, contractors and other persons on whom we rely may be adversely affected by COVID-19. Although we are taking precautionary measures intended to help minimize the risk of the virus to our employees, these measures may be ineffective or may otherwise adversely affect our productivity. In addition, the conditions created by the pandemic may intensify other risks inherent in our business. Due to the unknown magnitude, duration and outcome of the COVID-19 pandemic, it is not possible to estimate precisely its impact on our business, operations or financial results; however, the impact could be material.
To the extent COVID-19 adversely affects our business, financial condition, and results of operations and global economic conditions more generally, it may also have the effect of heightening many of the other risk factors described in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019.
If our clinical trials or clinical protocols are delayed, suspended or terminated, we may be unable to develop our product candidates on a timely basis, which would adversely affect our ability to obtain regulatory approvals, increase our development costs and delay or prevent commercialization of approved products.
We cannot predict whether we will encounter problems with any of our completed, ongoing or planned clinical trials or clinical data collection protocols that will cause regulatory agencies, institutional review boards or ethics committees, or us to delay our clinical trials or suspend or delay the analysis of the data from those trials. Clinical trials and clinical data protocols can be delayed for a variety of reasons, including:
● | discussions with the FDA, the EMA or other foreign authorities regarding the scope or design of our clinical trials or clinical data collection protocols; |
● | delays or the inability to obtain required approvals from institutional review boards, ethics committees or other responsible entities at clinical sites selected for participation in our clinical trials; |
● | delays in enrolling patients into clinical trials, collecting data from enrolled patients, adequately monitoring patients before or after treatment, or collecting historical control data for any reason including disease severity, trial or data collection protocol design, study eligibility criteria, patient population size (e.g., for orphan diseases or for some pediatric indications), proximity and/or availability of clinical trial sites for prospective patients, availability of competing therapies and clinical trials, regional differences in diagnosis and treatment, perceived risks and benefits of the product or product candidate, physician patient referral practices, disruptions due to external events, including an outbreak of pandemic or contagious disease such as the COVID-19 coronavirus, which has slowed enrollment in our clinical trials of narsoplimab in patients with IgA nephropathy; |
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● | lower than anticipated retention rates of patients in clinical trials; |
● | the need to repeat or conduct additional clinical trials as a result of inconclusive or negative results, failure to replicate positive early clinical data in subsequent clinical trials, failure to deliver an efficacious dose of a product candidate, poorly executed testing, a failure of a clinical site to adhere to the clinical protocol, an unacceptable study design or other problems; |
● | adverse findings in clinical or nonclinical studies related to the safety of our product candidates in humans; |
● | an insufficient supply of product candidate materials or other materials necessary to conduct our clinical trials; |
● | the need to qualify new suppliers of product candidate materials for FDA and foreign regulatory approval; |
● | an unfavorable inspection or review by the FDA or other regulatory authority of a clinical trial site or records of any clinical investigation; |
● | the occurrence of unacceptable drug-related side effects or adverse events experienced by participants in our clinical trials; |
● | the suspension by a regulatory agency of a trial by imposing a clinical hold; or |
● | the amendment of clinical trial or data collection protocols to reflect changes in regulatory requirements and guidance or other reasons as well as subsequent re-examination of amendments to clinical trial or data collection protocols by institutional review boards or ethics committees. |
● | In addition, our clinical trial or development programs have been, and in the future may be, suspended or terminated by us, the FDA or other regulatory authorities, or institutional review boards or ethics committees due to a number of factors, including: |
● | failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols; |
● | inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities resulting in the imposition of a clinical hold; |
● | the failure to remove a clinical hold in a timely manner, if at all; |
● | unforeseen safety issues or any determination that a trial presents unacceptable health risks; |
● | inability to deliver an efficacious dose of a product candidate; or |
● | lack of adequate funding to continue the clinical trial or development program, including as a result of unforeseen costs due to enrollment delays, requirements to conduct additional trials and studies and/or increased expenses associated with the services of our contract research organizations (“CROs”), or other third-parties. |
If the results of our clinical trials are not available when we expect or if we encounter any delay in the analysis of data from our clinical trials, we may be unable to file for regulatory approval or conduct additional clinical trials on the schedule we currently anticipate. Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of a product candidate. Any delays in completing our clinical trials could increase our development costs, could slow down our product development and regulatory submission process, could delay our receipt of product revenue and could make it difficult to raise additional capital. In addition, significant clinical trial delays also could allow our competitors to bring products to market before we do and impair our ability to commercialize our future products, potentially harming our business.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 6. EXHIBITS
| | |
Exhibit Number | Description | |
10.1 | | |
10.2* | | Consulting Agreement effective February 10, 2020 between Omeros Corporation and Kurt Zumwalt |
31.1 | | |
31.2 | | |
32.1 | | |
32.2 | | |
101.INS | | Inline XBRL Instance Document |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104.1 | | Cover Page Interactive Data File, formatted in Inline XBRL (included in Exhibit 101) |
| | |
*Indicates management contract or compensatory plan or arrangement. |
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SIGNATURES
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: May | /s/ Gregory A. Demopulos |
| Gregory A. Demopulos, M.D. |
| President, Chief Executive Officer and Chairman of the Board of Directors |
| |
Dated: May | /s/ Michael A. Jacobsen |
| Michael A. Jacobsen |
| Vice President, Finance, Chief Accounting Officer and Treasurer |
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