Omeros Corp Q1 FY2024 Earnings Call

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

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.

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 two 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. Additionally, there was a $4.1 million gain on the 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 two 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 two 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've 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 the FDA regarding the resubmission of our biologics license application, or BLA, for narsoplimab in hematopoietic stem cell transplant-associated thrombotic microangiopathy, or TA-TMA. Given the prescribed timelines and rules regarding meetings with the FDA, we do not have a firm date for BLA resubmission or the related decision date for approval at this time. As I noted last month, when we do have that information, we'll provide you with an update. We remain optimistic about 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, with multiple ongoing Phase II studies in two rare disease indications: Paroxysmal nocturnal hemoglobinuria, or PNH, a life-threatening immunologic disorder, and complement 3 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, which we believe remains largely underrecognized by the investment community. To summarize, we believe that OMS906 has several distinct and substantial benefits, which give us confidence that it will favorably differentiate compared to other alternative pathway inhibitors currently available or in development. Additionally, demonstrated efficacy with other alternative pathway inhibitors, such as the Factor B inhibitor iptacopan, further derisks 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, we expect that we should. Iptacopan continues to build a roadmap 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: one, MASP-3 inhibition, like C3 and C5 inhibitors, leaves entirely intact the infection-fighting lytic arm of the classical pathway of complement, an advantage that could 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 two months to once quarterly dosing, OMS906 is expected to provide superior patient convenience and compliance. Market research to date has shown a consistently favorable response to OMS906 among physicians, driven by the drug's expected efficacy and low treatment burden. Interestingly, physicians have also shown a preference for both the once every two months and 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, allowing physicians to oversee drug administration and ensure patient compliance. From the patient's perspective, the extended interval dosing regimens of OMS906 should help them live a more normal life without the daily oral medication reminder that they are sick. Our three 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, 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. Then, in those patients who demonstrate a 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 two 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. Morag 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 two different doses of OMS906. All patients in the high-dose group achieved clinical response, defined as an increase in hemoglobin of at least 2 grams, and 6 of 7 patients in the low-dose group also accomplished 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 signals of concern. There will also be two 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 is enrolling, and we 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, 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 the lectin 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 high-value 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 murine 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 are not ideal for patient comfort. Since MASP-2 is produced exclusively in the liver, systemic administration 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 physicians. We continue to target next quarter to select a Phase II indication for OMS1029. With less resource-intensive work ongoing, efforts with narsoplimab in both severe acute and long COVID or PASC, 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 increasingly supports 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 to COVID, requiring hospitalization. The assay also has potential applicability to patients with other forms of ARDS and long COVID as well. In addition to our MASP-2 and MASP-3 antibody inhibitors, narsoplimab, OMS906, and OMS1029, our complement franchise includes the development of 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 much of what we've 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 levodopa-induced dyskinesias or LID. This is a significant problem in patients treated with levodopa, which is 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 may 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 the 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?

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 royalty sale to DRI Healthcare, and also a $4.1 million gain on the early extinguishment of a portion of our 2026 notes. 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 extinguishment transaction, our loss from continuing operations for Q4 and Q1 would have been within $450,000 of each note. As of March 31, we had $230 million of cash and investments on hand, an increase of $58 million from year-end. Of the two first-quarter transactions that significantly affected our Q1 ending cash balance, one was positive due to the DRI deal, bringing in $115 million of non-diluted capital, with the opportunity to earn up to an additional total of $55 million and two more sales-related milestone payments of $27.5 million each. The second negatively impacted our cash balance due to the repurchase of 3.2 million shares of our common stock for an aggregate purchase price of $11.9 million. 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 stood at $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, alongside 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 finalized in February of 2024. The primary drivers of interest expense are the 2026 notes and the DRI OMIDRIA royalty obligation. Interest and other income for the first quarter was $3.4 million, comparable to the fourth quarter of last year. Income from discontinued operations for this quarter was $6.7 million, which includes two primary components: $4.3 million of interest earned on the OMIDRIA contract royalty asset, and $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, and net sales of OMIDRIA totaled $31.2 million. This is compared to net sales in the fourth quarter of $35.7 million, which reflects a decrease of $4.5 million in the current quarter compared to the previous fourth quarter, yet 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. As Greg mentioned, in February this year, we entered into an amended agreement with DRI, which granted them 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 until 2035. As I mentioned, we also are entitled now and going forward to any non-U.S. royalties, which are generally 15% of net sales. In the first quarter of 2024, we recorded $115.5 million from DRI as incremental OMIDRIA royalty obligation on our balance sheet. This aligns with the counting of the initial transaction with DRI. Now let's look at our expected second-quarter results. We expect that overall operating costs from continuing operations in the second quarter will increase by about $16 million to $17 million compared to the first quarter. This increase is primarily due to the expected receipt of drug substance manufactured from our third-party vendor, which is expensed upon delivery to us. As you may recall, we expense 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, marking an increase of $800,000 over the first quarter. The increased mutual expenses are due to the incremental interest recorded as a result of completing the DRI transaction. Income for discontinued operations should reach $7 million to $8 million.

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

Our first question comes from Steve Brozak from WBB Securities.

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.

Let me first take that, and then I think I'll hand it off to clinical and commercial as well. But we've said in the prepared comments that the responses from the market research done to date, which has included physicians and within that, key opinion leaders has been consistently positive. That's really been driven by two primary factors. One is the data to date. Based on the data we have, the expected efficacy and anticipated efficacy of OMS906 in patients. The second is its dosing ability, meaning every other month to once quarterly dosing, which represents a significant reduction in patient burden. It coincides with how physicians follow their patients, so they can then administer the drug. The importance of that is that physicians are comfortable and confident; they know the patients are complying with treatment because they are administering it. Those are all seen as very positive attributes. Moreover, when you consider how patients would view this, taking some sort of infusion, whether it's subcutaneous or IV, once every other month or quarterly, they are not consistently reminded that they are sick. Instead, they go and have the infusion, live their lives as they normally would. Taking oral medication once daily or twice daily can be a constant reminder that there's a problem they have to deal with for their entire life. We think the response from physicians has confirmed this as a positive outlook.

The consideration that you mentioned about the twice-daily oral treatment, while it's convenient for many, does have complications. For instance, gastrointestinal upset like diarrhea and the need to travel across time zones can complicate what may seem like a straightforward regimen. So the appeal of taking something every other month or every quarter without needing to worry about it in between is attractive and significant to many patients and physicians because they will know they've given it.

Anything to add from the clinical side on that?

Everything has been well said. I haven't encountered anything but enthusiasm when talking to KOLs and physicians who treat these patients. Potential clinical sites are seeing no issues with this regimen and find it attractive for trial participants.

Nadia?

What I'll add is that we are in the middle of extensive market research, and it's exciting to hear the reactions to OMS906's product profile. Doctors are indicating that their patients need options and are very encouraged by what they're seeing, both in terms of efficacy as well as the low treatment burden—essentially moving to only four times a year. We're also excited about the opportunity to meet with patients in the market research capacity later this month and continue this work.

Steve, you mentioned you had a follow-up, but we may have answered that already. Let us know.

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

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

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?

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 expect to have those data later in the year. Regarding the monotherapy side, my target is that we’re looking for a meaningful improvement in hemoglobin levels in these patients on monotherapy over what they were receiving on ravulizumab. Let me look to clinical and see if they have other things to add to that.

We are looking for data that are at least comparable to those of other switch studies that have been reported. The EHA abstract, which came out recently, noted that in our high dose group, all patients treated at the high dose achieved a clinical response of at least a 2-gram per deciliter increase in hemoglobin, which is one of the co-primary endpoints. This compares favorably to other switch studies.

Even in the low-dose group, I think 6 of 7 achieved the same outcome, right? So we're quite happy with how the data are looking for OMS906 generally. We think the data are impressive, and we're looking forward to initiating Phase III and completing our Phase III program, ultimately bringing OMS906 to market.

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

I'm 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 the progress made with the FDA since you last received an update in April?

Yes. In answer to your first question, discussions and interactions are ongoing with both U.S. and European regulators as we prepare for the Phase III trial. Let me turn to Cathy; see if she can shed more light on that.

Yes, it's fairly standard, and we are ensuring open communication lines in both the U.S. and Europe while trying to harmonize those efforts so that we have a very efficient Phase III program.

Thank you. In response to your second question, we don't typically provide commentary on our interactions with regulators. However, I can say that we are confident in the data that we have. We believe the drug warrants approval, and that is our objective. The usage of the drug across compassionate use, or what is formally known as the expanded access program, shows very clear data, and we're eager to get the drug approved. Additionally, there is no drug currently approved for this indication, and we think it compares favorably to other agents being used off-label. We're hearing similar sentiments from physicians, both in the U.S. and internationally. While we recognize it has taken a long time, our strong hope and expectation is that we will get approval as the data support it.

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

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. We look forward to bringing you future updates, and as always, we appreciate your continued support. Have a good afternoon.

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