Omeros(OMER) - 2021 Q4 - Annual Report

Part I Business Omeros is a clinical-stage biopharmaceutical company focused on immunologic diseases, with lead drug narsoplimab under FDA review and OMIDRIA® divested Overview - Omeros is a biopharmaceutical company focused on discovering and developing therapeutics for immunologic diseases, cancers related to immune system dysfunction, and addictive disorders[15] - The company's lead drug candidate, narsoplimab, received a Complete Response Letter (CRL) from the FDA for its Biologics License Application (BLA) in HSCT-TMA, with a Type A meeting held in February 2022 to address the issues[16] - On December 23, 2021, Omeros completed the sale of its commercial product OMIDRIA® to Rayner Surgical Inc. for approximately $126.0 million in cash, future royalties, and a potential $200.0 million milestone payment[19][21] Drug Candidates and Development Programs Clinical and Preclinical Development Pipeline | Program/Candidate | Indication(s) | Development Status | | :--- | :--- | :--- | | Clinical | | | | Narsoplimab (MASP-2) | HSCT-TMA | Pivotal Trial Complete; BLA pending | | Narsoplimab (MASP-2) | IgA Nephropathy (IgAN) | Phase 3 | | Narsoplimab (MASP-2) | Atypical Hemolytic Uremic Syndrome (aHUS) | Phase 3 | | Narsoplimab (MASP-2) | Severe COVID-19 | Phase 2 | | OMS906 (MASP-3) | Paroxysmal Nocturnal Hemoglobinuria (PNH) | Phase 1 | | OMS527 (PDE7) | Addictions and compulsive disorders | Phase 1 | | Preclinical | | | | GPR174 Inhibitors | Wide range of cancers | Preclinical | MASP Inhibitor Clinical Programs - Narsoplimab (MASP-2 inhibitor) pivotal trial for HSCT-TMA showed a 61% complete response rate in all treated patients and 74% in patients receiving at least four weeks of dosing, with the BLA pending before the FDA following a CRL[31][34] - A Phase 3 trial (ARTEMIS-IGAN) for narsoplimab in IgA nephropathy is ongoing, with the primary endpoint being reduction in proteinuria at 36 weeks[40] - Narsoplimab is being evaluated for severe COVID-19, with compassionate use data showing rapid reduction in markers of endothelial damage and inflammation, and 100% survival in the initial cohort of six patients[44][46] - OMS906, a MASP-3 inhibitor targeting the alternative pathway of complement, has completed a single-ascending-dose Phase 1 trial and is advancing to a Phase 1b trial in PNH patients[55][56] Other Clinical and Preclinical Programs - The PDE7 program (OMS527) for addiction and movement disorders has completed a Phase 1 trial, but further clinical development is pending resource allocation[62][63] - The PPARγ program (OMS405) has shown positive Phase 2 results in reducing heroin and cocaine cravings[66][67] - The proprietary GPCR platform has identified compounds that interact with 54 of 81 Class A orphan GPCRs, with a key focus on GPR174, a novel immuno-oncology target[70][71] Commercial, Manufacturing, and Corporate Operations - The company relies on third-party contract manufacturers for all clinical and commercial supply, with a key master services agreement with Lonza for the commercial production of narsoplimab[78][82] - Omeros holds worldwide exclusive licenses for its MASP-2 and MASP-3 programs from institutions including the University of Leicester, MRC, and Helion Biotech[53][57][86] - As of February 9, 2022, the company owned or held exclusive licenses to 80 issued U.S. patents and 1,205 issued foreign patents across its development programs[101] - As of December 31, 2021, the company had 213 full-time employees, with 135 dedicated to research and development[166] Risk Factors The company faces risks including OMIDRIA royalty dependency, narsoplimab approval uncertainty, reliance on third-party manufacturers, and the need for additional capital - Future profitability is highly dependent on royalty income from Rayner's sales of OMIDRIA, which could be materially reduced if CMS discontinues its policy of separate payment for the product under Medicare Part B[189][190] - The company's ability to commercialize narsoplimab is at risk due to the CRL received from the FDA for the HSCT-TMA indication, with no guarantee of drug approval[194] - The company has a history of operating losses, with an accumulated deficit of approximately $682.1 million as of December 31, 2021, and may need to raise additional capital to fund its development and commercialization efforts[213][214] - Omeros has no internal manufacturing capacity and relies solely on third-party manufacturers for clinical and commercial supplies, where any disruption could significantly delay clinical trials and regulatory submissions[224] Properties Omeros leases 119,719 square feet for its principal office and laboratory in Seattle, WA, with a lease through November 2027 and $7.1 million annual rent - The company leases its principal office and laboratory space of approximately 119,719 square feet in Seattle, WA, with a lease term through November 2027[272] Legal Proceedings As of the filing date of this report, the company was not involved in any material legal proceedings - The company reports no material legal proceedings as of the filing date[274] Part II Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Omeros' common stock trades on Nasdaq under "OMER" with 62,726,515 shares outstanding and no cash dividends paid or anticipated - Omeros' common stock trades on The Nasdaq Global Market under the symbol "OMER"[278] - As of February 24, 2022, there were 62,726,515 shares of common stock outstanding[278] - The company has never paid cash dividends and does not intend to in the foreseeable future[279] Management's Discussion and Analysis of Financial Condition and Results of Operations This section details financial performance, including OMIDRIA divestiture, increased R&D and SG&A, a $191.5 million net loss from continuing operations, and a $194.2 million total net income for 2021 Results of Operations Continuing Research and Development Expenses (in thousands) | Category | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | MASP-2 program (narsoplimab) | $48,806 | $45,020 | $49,804 | | MASP-3 program (OMS906) | $7,005 | $7,172 | $0 | | Preclinical R&D | $15,031 | $10,664 | $14,291 | | Internal, overhead & other | $40,587 | $36,760 | $32,155 | | Total Continuing R&D | $118,775 | $107,612 | $106,324 | Continuing Selling, General and Administrative Expenses (in thousands) | Category | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | SG&A (excl. stock comp) | $46,688 | $41,692 | $32,755 | | Stock-based compensation | $8,154 | $7,614 | $6,959 | | Total Continuing SG&A | $54,842 | $49,306 | $39,714 | Net Income from Discontinued Operations (in thousands) | Category | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Product sales, net | $110,735 | $73,813 | $111,805 | | Income before income tax | $81,139 | $46,317 | $82,656 | | Gain on sale of OMIDRIA, net | $305,648 | $0 | $0 | | Net income from discontinued ops | $385,781 | $35,072 | $62,882 | Financial Condition, Liquidity and Capital Resources - As of December 31, 2021, the company had $157.3 million in cash, cash equivalents, and short-term investments, compared to $135.0 million at year-end 2020[315] - The company plans to fund operations with existing cash, OMIDRIA royalties, and potential narsoplimab sales if approved, also having an "at the market" equity offering facility of up to $150.0 million[316] Selected Cash Flow Data (in thousands) | Activity | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Cash used in Operating Activities | $(109,722) | $(100,086) | $(60,073) | | Cash provided by (used in) Investing Activities | $193,710 | $(67,031) | $(3,401) | | Cash provided by Financing Activities | $6,319 | $174,534 | $60,697 | Critical Accounting Policies and Significant Judgments and Estimates - Critical accounting policies include revenue recognition (net of deductions), valuation of the OMIDRIA contract royalty asset, accounting for clinical trial expenses, lease accounting, convertible debt accounting, and stock-based compensation[329] - The OMIDRIA contract royalty asset was valued using an expected value approach, summing discounted probability-weighted future royalty payments, with a 10% change in net sales resulting in an $18.4 million change in the asset's value[335] Quantitative and Qualitative Disclosures About Market Risk The company's market risk is primarily limited to investment securities and debt, with high-quality, short-term holdings minimizing interest rate exposure - Market risk exposure is mainly confined to investment securities and debt, with the portfolio of high-quality, short-term investments not expected to be materially impacted by changes in interest rates[348] Financial Statements and Supplementary Data This section presents audited financial statements for 2019-2021, highlighting $419.3 million total assets and $194.2 million net income in 2021, with an unqualified audit opinion - The independent auditor, Ernst & Young LLP, issued an unqualified opinion on the financial statements and identified two Critical Audit Matters: Revenue Deductions and the valuation of the OMIDRIA Contract Royalty Asset[351][356][357] Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash, cash equivalents & short-term investments | $157,266 | $134,953 | | OMIDRIA contract royalty asset (short & long-term) | $184,570 | $0 | | Total Assets | $419,268 | $181,042 | | Unsecured convertible senior notes, net | $313,458 | $236,288 | | Total Shareholders' Equity (Deficit) | $23,780 | $(120,752) | Consolidated Statement of Operations Highlights (in thousands) | Account | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Loss from continuing operations | $(173,617) | $(156,918) | $(146,038) | | Net loss from continuing operations | $(191,546) | $(173,133) | $(147,368) | | Net income from discontinued operations | $385,781 | $35,072 | $62,882 | | Net Income (Loss) | $194,235 | $(138,061) | $(84,486) | Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021, affirmed by Ernst & Young LLP - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[491] - Based on the COSO 2013 framework, management concluded that internal control over financial reporting was effective as of December 31, 2021, with this assessment audited by Ernst & Young LLP, which issued an unqualified opinion[494][497] Part III Directors, Corporate Governance, Compensation, and Related Matters Information for Items 10-14 is incorporated by reference from the company's definitive proxy statement for the 2022 Annual Meeting of Shareholders - Information regarding directors, executive officers, corporate governance, executive compensation, security ownership, and principal accounting fees is incorporated by reference from the company's 2022 proxy statement[507][508][509][513][514] Part IV Exhibits, Financial Statement Schedules This section lists financial statements and provides an index of all exhibits filed with the Form 10-K, including material contracts and debt instruments - This section provides an index of all exhibits filed with the Form 10-K, including material contracts, debt instruments, and compensation plans[518] - Key filed exhibits include the Asset Purchase Agreement for OMIDRIA, indentures for the 2023 and 2026 convertible senior notes, and the Loan and Security Agreement with Silicon Valley Bank[520][526]