Omeros Corporation (OMER) Earnings Call Transcript & Summary

Good morning, and welcome to today's conference 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 turn over the call to Jennifer Williams, Investor Relations for Omeros.

Good morning, and thank you for joining the call today to discuss Omeros Corporation's agreement to divest its OMIDRIA franchise to Rayner Surgical. I'd like to remind you that today's call will include forward-looking statements, including statements regarding expected completion of and anticipated payments to be received in connection with the transaction discussed on today's call. 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. For a discussion of these risks and uncertainties, please refer to the Risk Factors section of the company's 2020 annual report on Form 10-K, subsequently filed quarterly reports on Form 10-Q and other SEC filings. Now I would like to turn the call over to Dr. Greg Demopulos, Omeros' Chairman and CEO.

Thank you, Jennifer, and good morning, everyone. We appreciate you joining us for today's call to discuss this important transaction. Joining me for today's call is Mike Jacobson, our Chief Accounting Officer; and Tim Duffy, our Head of Business Development. We're pleased to share the news today that we have entered into a definitive asset purchase agreement to sell our OMIDRIA franchise to Rayner Surgical. The sale will provide Omeros with substantial nondilutive cash for our operations, secure a long-term revenue stream in the form of substantial royalties on net sales of OMIDRIA in both the U.S. and abroad and enable Omeros to focus our strategic and financial resources on development and commercialization of our complement franchise and the rest of our innovative pipeline. The transaction is expected to close on or prior to December 31, 2021, subject to satisfaction or waiver of customary closing conditions. Rayner will acquire OMIDRIA and the associated business operations in the transaction, including the commercial and sales teams devoted to the product. Omeros will receive $125 million in cash at the closing plus an additional $200 million on achievement of a commercial milestone. Payment of that milestone is predicated on securing OMIDRIA's separate payment for a continuous period of at least 4 years. Omeros will also retain our outstanding accounts receivable at closing, which were $34 million at the end of last quarter. Omeros will also receive substantial royalties on both U.S. and ex U.S. net sales of OMIDRIA. The royalties on net sales of OMIDRIA in the U.S. will be paid at the rate of 50% until the earlier of either January 1, 2025, or the payment of the $200 million milestone. Thereafter, Omeros will receive a 30% royalty on U.S. net sales for the duration of the relevant patent terms, which extend at least out to 2032. The 50% royalty on net sales equates to approximately 2/3 of the operating profit and the 30% royalty translates to a little over 40% of the operating profit. Cumulatively, the upfront and milestone payments together with anticipated royalties on OMIDRIA U.S. sales are projected to be well in excess of $1 billion. Again, this transaction value only includes the royalties on U.S. sales. Omeros will also receive royalties on ex U.S. sales of OMIDRIA at the rate of 15% for the life of the relevant patents, which also extend to 2032 or longer. OMIDRIA is already approved by the European Medicines Agency for marketing throughout the European Economic Area and is also approved in the United Kingdom. But to date, we have not launched OMIDRIA outside the U.S. By contrast, Rayner has a long heritage and strong capabilities in the European ophthalmology market. Founded over a century ago and based in Sussex, England, Rayner is backed by CBC Capital, one of the world's leading private equity firms. Having developed the first intraocular lens in 1949, the company markets an innovative portfolio of ophthalmic products and is selling products in over 80 countries. Rayner's objectives in acquiring OMIDRIA and the OMIDRIA commercial organization are to create a leading ophthalmic position in the U.S. and to further strengthen its ex U.S. presence. With OMIDRIA as a premier product in its lineup, Rayner plans to expand on both the acquired sales force in the U.S. and its existing European sales force. The company's geographic reach along with its portfolio of really complementary ophthalmic surgical products are expected to further accelerate growth in OMIDRIA sales. We believe strongly that Rayner's strategy for OMIDRIA is sound and that they are the right group to grow sales of OMIDRIA to new heights. We at Omeros are highly motivated to do everything possible to make the transaction and the ongoing operation of the OMIDRIA business a success, and we look forward to continue working side-by-side with Rayner to achieve our shared vision for the product. With the infusion of the $125 million upfront payment alone, we will have sufficient capital to run through 2023, and the deal itself remains cash flow positive through at least 2026 beyond the financial terms that will provide Omeros with a source of both immediate and long-term capital, while substantially reducing our expenditures, by transferring all OMIDRIA-related costs to Rayner. The divestiture of OMIDRIA and its associated operations is the right strategic move for our company. Revenues from sales of OMIDRIA have provided Omeros with significant working capital since the drug's U.S. market launch in 2015. This has enabled us to invest in the development of our innovative pipeline of large- and small-molecule drug candidates with significantly less need to dilute shareholders through the sale of equity. Transferring the ophthalmology business to Rayner, in which we still retain a substantial interest in future economics, allows us to focus our resources on our complement franchise, including narsoplimab, OMS906, and our other MASP-2 and MASP-3 inhibitors and the rest of our pipeline. With that, operator, let's open the call for questions.

[Operator Instructions] Our first question comes from Colin Bristow with UBS.

Congrats on this transaction. You mentioned the deal will include the OMIDRIA commercial team. Can you just give us any guidance about what this will do to your OpEx going forward? That would be helpful. Yes, this is obviously a lot of cash to be getting through the door. Yes, just if you could elaborate on your plans here, that would be great. And then the final question is, can you give us an update on where you stand in terms of the interactions and path forward for HSCT-TMA? And does this transaction in any way signal an increased cash need from your perspective in terms of potential trials?

Great. Thanks, Colin. First question with respect to reducing our expenditures, this should reduce our expenditures in excess of $30 million annually. With respect to our plans going forward, obviously, this allows us, as you've noted, to focus on our biotech pipeline, including primarily our complement franchise and then the programs behind it. I want to be clear that this in no way signals that somehow we're expecting a substantial increase in costs on narsoplimab. This is just, frankly, a very good deal, and it is really independent of narsoplimab. With respect to where we are with the Type A meeting, as a rule, we don't speak publicly about specific timing of upcoming interactions with FDA. When we have more information to share, we'll provide an update. But I want to underscore again that we are not signaling anything with respect to concerns about cash requirements for narsoplimab. Did that answer your questions, Colin?

Yes, that's great. And maybe just an update and refresh us where you are on sort of FDA interactions timing and clarity on path forward for HSCT-TMA?

Yes. As I said, we just -- as a rule, we don't speak publicly about the specific timing of upcoming interactions. So when we have more information to share, we'll provide an update. But as a rule, we just don't talk about those. So we'll let you know.

Is it reasonable to expect that in the first quarter?

You're talking about the Type A meeting?

Just you're providing additional communication to the Street.

Yes. No, I think the additional communications could be later this quarter or at some point soon. We will just need to see how that plays out.

Our next question comes from Steve Brozak with WBB.

Congratulations, of course. Greg, this deal with Rayner, can you explain the overseas part? Because, obviously, we've always been focused on the U.S. part. But given their European global focus, can you give us whatever details you can on that, please?

Sure. Thanks, Steve. Well, as you know, we've never launched in Europe. We are only in the U.S. This is why -- or this is one of the reasons that this is such a perfect fit. Rayner has a very strong presence ex U.S. Our presence is U.S. So we already have EMA approval in Europe. We also have U.K. approval from MHRA. So Rayner will be able to launch that product quickly. And the revenue stream that we expect to receive there is about 15 -- well, is 15% of net sales.

Okay. And in terms of expanding the growth of OMIDRIA here in the United States, I would assume that, that's part of their overall plan as well. Or can you go into details as far as that goes with Rayner, please?

Yes, that is their plan. And the -- we there were -- they will be assuming -- in addition to our sales force, they're assuming the commercial operation dedicated to OMIDRIA. What their plan is, will entail we expect and what we've discussed is adding sales representatives in the U.S. The fact that they also have additional products, which they sell, so those are intraocular lenses, those are viscoelastics, those are dry eye treatments. All of those should further increase access for OMIDRIA to ASCs, HOPDs, to the facilities where cataract surgery is performed. When you think about their IOLs and you think about viscoelastics, all of those are used as part of cataract surgery. So really, this could not be a better fit for this product. And that's really why we did this deal. I mean this is really a win-win.

Our next question comes from Greg Harrison with Bank of America.

Congratulations on the deal. And just wondering if there are specific areas within the pipeline that you plan to accelerate with the additional capital. Would it be more some of the other trials in -- for narsoplimab that had been kind of deprioritized? Or would you look at maybe moving forward with some of the -- your earlier-stage MASP-2 or MASP-3 inhibitors or even earlier in the pipeline?

Sure. I think certainly, our focus will be on the complement franchise writ large. So those are MASP-2 programs. Those are also MASP-3 inhibitor programs. I think this also allows us to fund additional work that we have behind those 2 programs, for example, the immuno-oncology space that we have. So I think really, it allows us to advance what is now a strictly biotech pipeline.

Our next question comes from Jason McCarthy with Maxim Group.

This is Michael Okunewitch on the line for Jason. Congrats on the deal. So I'd like to just dig a little bit deeper on to the impact that divesting the sales force for OMIDRIA will have on your SG&A line. Can you just talk a bit about what proportion of your previous operating expense was dedicated to OMIDRIA?

Yes. As I said, it's a little over $30 million annually. So that will be -- those will be direct savings.

All right. And then I'd also like to ask, how much more room is there for OMIDRIA to grow? You guys have done a great job penetrating the U.S. market. But how much of the total addressable market in cataract surgery have you already captured? And how much more is there for Rayner to really drive additional penetration?

We -- that's a great question, and we think the potential increase there is really significant. I mean, we are currently operating with a penetration of somewhere maybe 8% to 10% of cataract surgical procedures in the U.S. We think that with Rayner helping to push this, I think that there is -- again, the objective is to make OMIDRIA standard of use in cataract surgical procedures. So we think there is tremendous upside in the U.S. and in ex U.S. territories, we're not selling. We haven't launched. So with Rayner and Rayner's strength there, we should be able to obviously realize substantial upside. This is why, again, this deal makes so much sense. I mean, I think I said it's a win-win. But I mean, when you look at it, Omeros is keeping a significant portion of the ongoing economics while, as you noted, reducing overhead. Rayner is ophthalmology focused, and they're getting a premier product and a premier commercial organization, which is going to jump start them to a really strong U.S. presence, and it allows them to further strengthen their ex U.S. position. But while this is all happening, Omeros is receiving a substantial upfront. We have another large $200 million commercial milestone. We also -- I would -- I'd focus here as well on the royalty stream. I mean, as I said, the royalty stream provides Omeros about 2/3 of the operating profit for OMIDRIA at the 50% royalty and a little over 40% of the operating profit at 30% royalties. So this partnership makes tremendous sense from both companies' perspectives, and I think this is why we moved quickly both parties to get this deal done. We expect it again to close before or at end of year.

Our next question comes from Serge Belanger with Needham & Company.

Can you just talk about the IP -- the U.S. IP for OMIDRIA as well as the ex U.S. IP, I guess, in Europe? And maybe if you can tell us if there's any remaining Paragraph IV challenges in the U.S.?

Yes. As you know, Serge, we had several challenges to the IP estate. There were 3 different challenges. Those all were favorably settled for Omeros. In fact, I think there's 6 months that we handed at worst off of our IP. So the existing patents run out to 2032. We have additional patents pending. And if issued, those would extend the patent date well beyond 2032, and that is applicable to both U.S. and ex U.S.

And I'm currently showing no further questions at this time. I'd like to turn the call back over to Dr. Demopulos for closing remarks.

All right. Thank you again, everyone, for taking the time to join us. We look forward to closing the transaction. As always, we appreciate your continued support, and we look forward to talking with you again in the coming weeks. Take care, and have a good day.

This concludes today's conference call. Thank you for participating. You may now disconnect.