Omeros Corp

NASDAQ:OMER

Earnings Call Transcript 2024-Q1

[Operator]

Good afternoon, and welcome to today's earnings call for Omeros Corporation. [Operator Instructions] Please be advised that this call is being recorded at the company's request. And a replay will be available on the company's website for 1 week from today. I'll now turn the call over to Jennifer Williams, Investor Relations for Omeros.

[Jennifer Cook Williams, executive]

Good afternoon, and thank you for joining the call today. I'd like to remind you that some of the statements that will be made on the call today will be forward-looking. These statements are based on management's beliefs and expectations as of today only and are subject to change.

All forward-looking statements involve risks and uncertainties that could cause the company's actual results to differ materially. Please refer to the special note regarding forward-looking statements in the company's quarterly report on Form 10-Q, which was filed today with the SEC. And the Risk Factors section of the company's most recent annual report on Form 10-K for a discussion of these risks and uncertainties.

Now I would like to turn the call over to Dr. Greg Demopulos, Chairman and CEO of Omeros.

[Gregory Demopulos, executive]

Thank you, Jennifer, and good afternoon, everyone. I'm joined on today's call by Mike Jacobsen, Nadia Dac, Andreas Grauer, Cathy Melfi and Steve Whitaker, collectively representing our finance, commercial, clinical and regulatory functions.

I'll start today with an overview and discussion of our first quarter 2024 financial results, followed by an update on our ongoing development programs. Mike will then provide a more detailed financial summary before we open the call to questions.

Let's now look at our financial results for the first quarter. Our net loss for the first quarter of 2024 was $37.2 million or $0.63 per share, compared to a net loss of $9.1 million or $0.15 per share in the fourth quarter of last year. The difference is driven by 2 factors. In the fourth quarter of last year, we had a remeasurement adjustment of $26.2 million to our OMIDRIA contract royalty asset, as a result of our OMIDRIA royalty sale to DRI Healthcare.

And a $4.1 million gain on early retirement of a portion of our 2026 convertible notes, following the fourth quarter open market repurchase of a notional amount of $9.1 million of those notes, at a cost of $4.9 million or 54% of par value.

Excluding these 2 transactions, our fourth quarter 2023 net loss would have been similar to that of the current quarter. As of March 31, 2024, we had $230.3 million of cash and investments on hand available to support ongoing operations and debt service an amount that we expect will be sufficient to fund operations and debt service into 2026.

In addition, one of our 2 negotiated milestone payments of up to $27.5 million based on sales milestones of OMIDRIA, if met becomes payable to Omeros in January 2026, with the second $27.5 million milestone, similarly payable in January 2028.

Let's now review our development programs. We provided a comprehensive update on these programs during our earnings call just last month. So today's update will be somewhat brief. We'll start with narsoplimab, our MASP-2 inhibitor targeting the lectin pathway of complement. As described last month, discussions are ongoing with FDA regarding the resubmission of our biologics license application, or BLA. For narsoplimab in hematopoietic stem cell transplant-associated thrombotic microingeopathy, or TA-TMA.

Given the prescribed time lines and rules regarding meetings with FDA, we do not, at this time, have a firm date for BLA resubmission or the related decision date for approval. As I noted last month, when we do have that information, we'll provide you with an update. We remain optimistic in the approval of narsoplimab.

In the meantime, we continue supplying narsoplimab under our expanded access program to TA-TMA patients and their physicians. Although, given the program's financial burden on Omeros, we are assessing how much longer we'll be able to maintain that program. Support for narsoplimab within the transplant community is strong and continues to grow.

In addition to the recent publications discussed in our last earnings call, a manuscript directed to the outcome of narsoplimab treatment in 20 real-world adult and pediatric patients, 19 of whom had high-risk characteristics, is expected to be published soon in nature's bone marrow transplantation.

Let's now turn to OMS906, our MASP-3 inhibitor targeting the alternative pathway of complement. OMS906 is advancing well where multiple ongoing Phase II studies in 2 rare disease indications. Paroxysmal nocturnal hemoglobinuria, or PNH, a life-threatening hematologic disorder and complement to glomerulopathy or C3G, a debilitating and potentially life-threatening kidney disease.

Across all of our clinical studies to date, OMS906 continues to perform extremely well. On last month's call, I went through a detailed review of the substantial value being built in our OMS906 program value, which we believe remains largely underrecognized by the investment community.

To summarize, we believe that OMS906 has several distinct and substantial benefits, which make us confident that OMS906 will favorably differentiate compared to other alternative pathway inhibitors currently available or in development. Adding to our confidence, demonstrated efficacy with other alternative pathway inhibitors, such as the Factor B inhibitor iptacopan, further derisk our OMS906 programs, by clinically validating alternative pathway inhibition across a list of disease indications, including PNH, IgA nephropathy and most recently, C3G.

While we are targeting iptacopan as our benchmark to be, and we expect that we should. Iptacopan continues to build a road map for us to follow with Phase III trials designed to highlight the potential advantages of OMS906 over other alternative pathway inhibitors. We've detailed on previous calls, what we see as the major differentiators between MASP-3 and OMS906 versus other alternative pathway targets in therapeutics, either approved or in development.

These include that: one, MASP-3 inhibition like C3 and C5 inhibitors leave entirely intact the infection-fighting lytic arm of the classical pathway of complement, an advantage that could well translate to better safety; two, unlike C3, C5 and Factor B, MASP-3 when examined has been shown not to be an acute phase reactant, which is thought to be an important advantage in maintaining adequate and consistent dosing, to prevent breakthrough of the underlying disease; and three, with once every 2 months to once quarterly dosing OMS906 is expected to provide superior patient convenience and compliance.

Market research to date has demonstrated a consistently favorable response to OMS906 among physicians, driven by the drug's database expected efficacy and low treatment burden. Interestingly, physicians have also shown a preference for both, the once every 2 months and the once quarterly intravenous dosing of OMS906 over the twice daily oral dosing of iptacopan.

This is because the dosing regimens of OMS906 coincide with the usual physician follow-up schedule for PNH patients and would allow physicians to oversee drug administration, ensuring patient compliance.

From the patient's perspective, the extended interval dosing regimens of OMS906 should allow them to live a more normal life without the daily oral medication reminder, but they are sick. Our 3 trials in our OMS906 Phase II clinical program in PNH are progressing well. The first evaluating OMS906 in PNH patients who have not previously been treated with a complement inhibitor. In other words, complement inhibitor naive, has fully enrolled and is in the dose-finding stage, assessing administration every 8 or every 12 weeks.

The second trial has a switchover design, enrolling PNH patients who have a suboptimal response to the C5 inhibitor ravulizumab. OMS906 is initially administered to these patients in combination with ravulizumab for 24 weeks. And then in those patients who demonstrated hemoglobin response with the combination therapy, OMS906 is delivered as monotherapy.

The switchover study is also fully enrolled and we're currently collecting OMS906 monotherapy data. The Third Phase II PNH trial an extension trial is enrolling patients who have completed either of the other 2 OMS906 PNH studies and is generating long-term efficacy and safety data for our program.

Results from the combination stage of the Phase II switchover trial have been selected for a podium presentation at the Annual Congress of the European Hematology Association, next month. Dr. R. Griffin, an internationally recognized expert in PNH from the St. James Teaching Hospital in Leeds, England, will deliver the presentation.

The presentation reports the results in PNH patients with 2 different doses of OMS906. All patients in the high dose group achieved clinical response, now which is defined as an increase in hemoglobin of at least 2 grams and 6 of 7 patients in the low-dose group also achieved the same level of clinical response.

No patients in either dose group required transfusions following initiation of OMS906. The drug was well tolerated without any safety signal of concern. There will also be 2 poster presentations at EHA directed to the pharmacokinetics and mechanism of action of OMS906.

Given the rapid progress and impressive performance of OMS906 in PNH, we remain on track to initiate our OMS906 Phase III PNH program in the fourth quarter of this year. Our Phase II clinical trial evaluating OMS906 in C3G and is enrolling.

Here again, we remain on track and expect to begin a Phase III program in C3G in the first quarter of 2025. In preparation for both the PNH and C3G OMS906 Phase III programs, discussions are ongoing with both U.S. and European regulators.

So in conclusion, around OMS906 based on data to date, we believe that OMS906 has a high likelihood of success, both with respect to patients' lives and to market impact.

Let's now discuss OMS1029 our long-acting inhibitor of MASP-2, targeting selective pathway. OMS1029 successfully completed a Phase I single ascending dose study supporting once quarterly dosing, administered either subcutaneously or intravenously.

The second half of that Phase I program, a multiple ascending dose study of OMS1029 is expected to read out data to our team later this quarter. As previously disclosed, we are evaluating several chronic large value indicators and indications for potential development of OMS1029. Among these is neovascular age-related macular degeneration, also known as wet AMD.

MASP-2 inhibition was previously demonstrated to be effective in a preclinical mirroring model of wet AMD. To further qualify the opportunity, we've initiated a valuation of OMS1029 in our primate model of wet AMD. Notably all approved treatments for wet AMD such as Lucentis and Eylea require intravitreal injections, meaning injections into the posterior chamber of the eye. These injections are required as frequently as every 4 weeks and obviously are not ideal or patient comfort.

Since MASP-2 is produced exclusively in the liver, systemic administration alone could block MASP-2, providing therapeutic benefit without the need for intravitreal injection. Simply put, intravenous or subcutaneous administration of OMS1029 could allow patients to maintain their sight and avoid painful injections in their eyes, a potential game changer in a very large market for both patients and their physicians.

We continue to target next quarter to select a Phase II indication for OMS1029. With less resource-intensive work are ongoing efforts with narsoplimab in both severe acute and long COVID or PAS, as well as in acute respiratory distress or ARDS, including H1N1 and H5N1 could add meaningful shareholder value in the near term.

The international literature, some of that novel work continuing to be generated by our team, increasingly support the central role of the lectin pathway in these diseases. As part of our efforts, we've developed an assay that can differentiate based on lectin pathway activation between those patients with mild COVID and those with severe ARDS related COVID, requiring hospitalization.

The assay also has potential applicability to patients with other forms of ARDS and to patients with long COVID as well. In addition to our MASP-2 and MASP-3 antibody inhibitors and narsoplimab, OMS906, and OMS1029, our complement franchise includes our developing small molecule, orally available MASP-2 and MASP-3 inhibitor programs, both of which are advancing rapidly.

Our oral MASP-2 inhibitor is further ahead, and we are considering well-suited indications for clinical trials. Our oral MASP-3 inhibitor program is quickly driving toward a drug development candidate, leveraging in good part, all that we learned throughout our MASP-2 small molecule program.

Turning to OMS527, our PDE7 inhibitor program aimed at treating addictions, compulsions and movement disorders at the directed request of the National Institute on Drug Abuse, or NIDA. We are developing OMS527 as a potential treatment for cocaine use disorder. The program is funded by NIDA through a $6.7 million grant. We anticipate receiving results later this year from a preclinical toxicology study of primates exposed to both cocaine and OMS527.

Assuming positive results in the toxicology study, we plan to initiate next year a randomized double-blind inpatient clinical trial, evaluating OMS527 in individuals with cocaine use disorder. Also, as referenced in last month's call, we're exploring the potential use of OMS527 in movement disorders, specifically L-DOPA -induced dyskinesias or LIDs. This is a major problem in patients treated with L-DOPA. And L-DOPA being the most common therapeutic use in Parkinson's disease.

As such, LID represents a large and effectively untapped commercial market. Our set of cellular and biologic immuno-oncology platforms also have the potential to generate near-term shareholder value. Following the recent generation of a large volume of exciting in vivo data, our primary focus is on signaling driven immunomodulators, antigen-driven immunomodulators that function both as therapeutics and vaccines, oncotoxins and adoptive T cell therapy, which we believe could supersede CAR-T.

These platforms represent novel approaches to cancer treatment designed to target both cell surface and intracellular cancer targets for broad cancer applicability, to increase both CD4 and CD8 levels to mitigate loss of treatment effect, seen with other therapies like checkpoint inhibitors to eliminate the need for costly and time-intensive cellular modification or engineering and to create immune memory against future relapse.

We continue building out a broad intellectual property position and expect to share more of our data later this year. I'll now turn the call over to Mike Jacobsen, our Chief Accounting Officer, to go through a more detailed discussion of our financial results. Mike?

[Michael Jacobsen, executive]

Thanks, Greg. Our net loss for the first quarter of 2024 was $37.2 million or $0.63 per share, compared to a net loss of $9.1 million or $0.15 per share in last year's fourth quarter.

As Greg mentioned, in the fourth quarter of last year, we had a remeasurement adjustment of $26.2 million to OMIDRIA contract royalty assets, due to the OMIDRIA [indiscernible] Healthcare and also a $4.1 million being on the early extinguishment of a portion of our 2026 bills.

Looking only at continuing operations. Our net loss for the current quarter was $43.9 million or $0.75 per share, compared with $39.3 million or $0.63 per share in the prior year quarter. The prior year fourth quarter benefited from the $4.1 million gain on the early extinguishment of the portion of the '26 notes.

Without this the extinguishment transaction, our loss from continuing operations for Q4 and Q1 would have been within $450,000 of each other. As of March 31, we had $230 million of cash and investments on hand, an increase of $58 million from year-end. Of the 2 first quarter transaction significantly affected our Q1 ending cash balance, both on a positive basis for the DRI deal, which brought in $115 million of non-diluted capital, with the opportunity to earn up to an additional total of $55 million and 2 more sales-related milestone payments of $27.5 million each.

And then secondly, the repurchase of the 3.2 million shares of our common stock for an aggregate purchase price of $11.9 million decreased our cash balance. Combined with our common stock purchases in the fourth quarter of '23, our total common stock repurchases to date are 5 million shares or 8% of our outstanding common stock. For an aggregate purchase price of $16.5 million or $3.30 per share.

Cost and expenses from continuing operations for the first quarter was $39 million, which was a decrease of $700,000 from the fourth quarter of last year. The decrease was driven by lower expenditures on the IGAN clinical trial as we close down the trial and by lower manufacturing costs.

These decreases were partially offset by higher compensation costs recorded in the first quarter. Interest expense for the first quarter was $8.2 million, which is $1.2 million higher than the fourth quarter of last year due to increased interest associated with the DRI transaction that was finalized in February of 2024.

The primary drivers of interest expense, again, are the 2026 notes in the DRI OMIDRIA royalty publication. Interest and other income for the first quarter was $3.4 million, which was comparable to the fourth quarter of last year. Income from discontinued operations for this quarter was $6.7 million and includes 2 primary components. $4.3 million of interest earned on the OMIDRIA contract royalty asset and then $2.3 million of remeasurement adjustments related to the OMIDRIA contract royalty asset.

As I've mentioned previously, royalties earned are recorded as a reduction in the OMIDRIA contract royalty asset on our balance sheet. OMIDRIA royalties for the first quarter were $9.4 million on a mid-rate net sales of $31.2 million. This is compared to net sales in the fourth quarter of $35.7 million or a $4.5 million decrease in the current quarter compared to the previous fourth quarter. Where it is a $500,000 increase over the prior year first quarter.

The decrease in net sales is expected given that Q1 historically represents the lowest quarter annually for OMIDRIA net sales in Q4 [indiscernible] . As Greg mentioned, in February, this year, we entered into an amended agreement with DRI, by which they acquired the right to receive all U.S. OMIDRIA royalties payable by Rayner through December 31, 2031.

We continue to hold all royalty rights to ex U.S. sales of OMIDRIA and after December 31, 2031. All U.S. royalty payments will also accrue to Omeros. The U.S. royalty rate is generally 30% of net sales and extends for the duration of the relevant patent terms, which we expect to be at least into 2035.

As I mentioned, we are also entitled now and going forward to any non-U.S. royalties, which are paid, which are generally 15% of net sales. In the first quarter of 2024, we recorded $115.5 million, which we received from DRI as incremental OMIDRIA royalty obligation on our balance sheet. This is consistent with the counting of the initial transaction with DRI.

Now let's take a look at our expected second quarter results. We expect overall operating costs from continuing operations in the first quarter. Our operations in the second quarter increased by about $16 million to $17 million for the first quarter. The increase is primarily due to the expected receipt of drug assessment manufactured from our third-party vendor, which is expensed upon delivery to us.

As you may recall, we expensed all manufacturing costs until we are reasonably assured of approval in the U.S. or the European Union. Interest income for the second quarter should be nearly $3 million and interest expense should be approximately $9 million, which is an increase of $800,000 over the first quarter. The increased mutual expenses due to the incremental interest recorded as a result of completing the DRI transaction. Income for discontinued operations should be in the $7 million to $8 million reach.

With that, I'll turn the call back over to Greg. Greg?

[Gregory Demopulos, executive]

Okay. Thanks, Mike. Operator, let's please open the call to questions. .

[Operator]

[Operator Instructions] Our first question comes from the line of Steve Brozal nfrom WBB Securities.

[Stephen Brozak, analyst]

Just one question. On 906, you were pretty extensive in how you describe the therapeutic window and how it would work. But tell me something, what are the KOLs giving you in terms of information on what they see and how important this will be? And then I've got one follow-up after that.

[Gregory Demopulos, executive]

Well, let me first take that and then I think I'll hand it off to clinical and commercial as well. But I think as we said in the prepared comments that the response with the market research done to date, which has included physicians and within that physician group key opinion leaders has been consistently positive.

And as I mentioned, that's really been driven by 2 primary factors. One is the data to date. And based on the data to date, the expected efficacy, the anticipated efficacy of OMS906 in patients. And the second is its dosing ability, meaning every other month to once quarterly dosing, that represents a significant reduction in patient burden. It coincides with how physicians follow their patients. so that physicians can then administer the drug.

And the importance of that is physicians then are comfortable. They're confident. They know that the patients are, in fact, complying with treatment. They know it because they're administering the treatment. So those are all seen as, I think, very positive attributes.

I think that certainly also when you think about how patients would view this, taking some sort of infusion, whether it's subcu, whether it's IV, once every other month, once quarterly, they're not consistently and repeatedly reminded that they're sick. Instead, they go and have the infusion, they walk away, they live their lives as they otherwise would live.

And taking an oral medication once daily, certainly twice daily is a constant reminder, I think, to patients that, gee, there's a problem here with which I have to deal for for my whole life. And we think the response also from physicians has been that's a positive.

But let me stop there. And I think, first, let me ask clinical and then follow up with commercial Andres. What do you have anything to add? Or Steve, anything to add to that?

[J. Whitaker, executive]

I think the consideration, you mentioned the tier treatment, that is obviously great. It's convenient for many, but I think you have that intestinal upset, you have diarrhea, you travel different time zones, their complications that make this simple -- supposedly simple regimen, not quite as simple. So taking something every other month or every quarter and not having to worry about it in the meantime is attractive or a significant number of patients and physicians because they will know that they have given it.

[Gregory Demopulos, executive]

Do you have anything to add from clinical on that?

[Unknown Executive]

I haven't encountered anything but enthusiasm when talking to KOLs, I'm talking to physicians who treat these patients. Potential clinical sites are seeing no problems with this regimen and think it will be attractive to trial participants.

[Gregory Demopulos, executive]

Nadia?

[Nadia Dac, executive]

What I'll add is that we are in the middle of extensive market research, and it's so exciting to hear the reactions to the product profile for 906. . Bottom line, the doctors are telling us patients need options. And they're very encouraged by what they're seeing, both efficacy but delivered with a low treatment burden, essentially moving to only 4 times a year. So we're also excited about the opportunity to meet with patients in the market research capacity later this month and continue this work.

[Gregory Demopulos, executive]

So Steve, I think you said you had a follow-up, but I don't know we may have answered that already for you, but let us know.

[Stephen Brozak, analyst]

You actually did asked and answered, but I appreciate the detail and the depth that you went into.

[Operator]

And our next question comes from the line of Olivia Brayer from Cantor Fitzgerald.

[Olivia Brayer, analyst]

For the OMS906 update coming, I wanted to clarify that the data we'll see at EHA is just through week 24 and that final switchover portion of the trial is later in the year. Is that right? And then maybe just help frame what level of efficacy you're looking to see later in the year from that monotherapy portion specifically?

[Gregory Demopulos, executive]

Sure. First, in answer to your initial question, yes, it's through the first 24 weeks. So it's through the combination therapy portion of the clinical trial. We are still collecting monotherapy data, and we expect to have those data later in the year.

With respect to what specifically we're targeting on the monotherapy side. I think that -- and again, I'll turn this to clinical, but I can tell you what our -- my target there is that certainly, what we're seeing is a meaningful improvement in hemoglobin in these patients on monotherapy, over what they were receiving on ravulizumab. But let me look to clinical and see if they have other things to add to that.

[J. Whitaker, executive]

I think that we are looking for data that are at least comparable to those of other switch studies that have been reported. The EHA abstract, I'm sure you know is now available online. I think he came out yesterday or the day before, it was made public.

And in that abstract, we note that the -- in our high dose group in that study, we looked at 2 different dose groups, dose escalation study. But in the high-dose group, all of the patients treated at the high dose achieve clinical response of -- that's 100%. That's a 2-gram per deciliter increase in hemoglobin, which was one of the primary or co-primary endpoints, iptacopan files, and that certainly compares favorably to other SWITCH studies.

[Gregory Demopulos, executive]

Even in the low dose, I think 6 of 7 achieved that, right? So no, we're quite happy with how the data are looking with how 906 is looking generally. We're -- we think the data are impressive. They continue to be impressive. And we're just looking forward to initiating Phase III and frankly, completing our Phase III program and bringing OMS906 to market. .

[Operator]

And our next question comes from the line of John Jinko from Needham & Company.

[Unknown Analyst]

On for Serge today. First, regarding the OMS906 trials, can you provide any color on what we can expect after the data is released and particularly whether we can expect meetings with the FDA, ahead of the Phase III initiation? And then second, regarding the narsoplimab BLA resubmission. Obviously, you mentioned updates are soon to come. Can you give any context to progress made with the FDA since you last received an update in April? Where kind of if the ball is in their hands at this time?

[Gregory Demopulos, executive]

Yes. So in answer to your first question, discussions, interactions are ongoing with both U.S. and European regulators as we prepare for the Phase III trial -- or Phase III program. So let me just turn to Cathy and she, Cathy, can you add more color to that?

[Catherine Melfi, executive]

Yes. I mean it really is fairly standard, and we are making sure that we are keeping the communication lines open in both the U.S. and Europe and trying to harmonize those as much as we can so that we have a very efficient Phase IIl program.

[Gregory Demopulos, executive]

Okay, thank you. And in answer to your second question, we really are not and have not do not provide sort of running commentary on our interactions with regulators. So there's not much that I have to say there other than we clearly are comfortable, confident in the data that we have. We believe the drug certainly warrants approval, and that is our objective.

When you look at the utilization of the drug across the compassionate use or what is more formally called the expanded access program. the data are really very clear. And we're eager to get the drug approved. There is no drug approved for this indication. We think it compares very favorably to other agents that are currently being used off-label in this indication.

And we're hearing similar things quite widely from physicians, both in the U.S. and international. So it's been a long time. We recognize that. But our expectation, certainly our strong hope and expectation is that we will get this approved, it certainly warrants it.

[Operator]

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Dr. Demopulos for any further remarks.

[Gregory Demopulos, executive]

Thank you, operator, and again, thank you all for joining this afternoon. We're pleased with our first quarter progress across our programs and believe that we are well positioned for continued success throughout the remainder of 2024 and beyond. So we look forward to bringing you future updates. And as always, we appreciate your continued support. Have a good afternoon.

[Operator]

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.