Omeros Corporation (OMER) Earnings Call Transcript

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. I'll now turn the call over to Jennifer Williams, Investor Relations. Please go ahead.

Thank you, and good afternoon, everyone. Before we begin, please note that today's discussion will include forward-looking statements. These statements reflect management's current expectations and beliefs as of today and are subject to risks and uncertainties that could cause actual results to differ materially. For a detailed discussion of these risks and uncertainties, please refer to the special note regarding forward-looking statements and the risk factors in our quarterly report on Form 10-Q filed today with the SEC, as well as our most recent annual report on Form 10-K. Today's call also will include certain non-GAAP financial measures. A reconciliation of these measures to the corresponding GAAP measures is included in Omeros's earnings release issued earlier today, available on the Investor Relations page of our website and furnished with the Form 8-K we filed today with the SEC. With that, I'll turn the call over to Dr. Gregory Demopulos, Chairman and CEO of Omeros.

Thank you, Jennifer, and good afternoon, everyone. Joining me today are David Borges, our Chief Accounting Officer, Dr. Cathy Melfi, our Chief Regulatory Officer, Dr. Steve Whitaker, Vice President of Clinical, and Bill Woodman, our Chief Commercial Officer. Promoted from within the company, Bill was recently appointed as our Chief Commercial Officer. Let me tell you a bit more about him. Bill joined Omeros 6 years ago as our Vice President of Sales and Market Development, bringing more than 25 years of industry experience, including sales and marketing leadership roles at Amgen, Spectrum Pharmaceuticals, and Jazz Pharmaceuticals, where he led the global launch of defibrotide. At Omeros, Bill largely built our commercial team and was instrumental in designing and executing the YARTEMLEA launch. I have long believed that Bill's background, capabilities, and achievements are ideally suited to Omeros's current and future objectives. Under his leadership, our commercial team is driving YARTEMLEA toward becoming the standard of care for TA-TMA and preparing for its expansion into a broad range of MASP-2 driven indications. Beyond complement, Bill's track record of driving growth across oncology, rare disease, and specialty biopharma products will serve Omeros well. Before I turn to the financial details, let me highlight 3 points. First, YARTEMLEA generated $32.2 million in gross sales in its first full quarter on the market. Second, operations generated $4.1 million of positive cash flow during the quarter. And third, we meaningfully strengthened our capital structure through our share and note repurchases. So I'll now begin with an overview of our second quarter operations and financial results, followed by program updates. David will then review the financials in more detail, after which we'll open the call for questions. As you know, the FDA approved YARTEMLEA, our lead MASP-2 inhibitor, in December 2025 for the treatment of hematopoietic stem cell transplant-associated thrombotic microangiopathy, or TA-TMA. YARTEMLEA is the first and only approved treatment for this often fatal complication of stem cell transplantation, and YARTEMLEA is also the first and only approved inhibitor of the lectin pathway of complement. We launched YARTEMLEA in mid-January, with initial distributor shipments beginning mid-month and first sales following shortly thereafter. The second quarter was our first full quarter of YARTEMLEA sales, and we're pleased to share the results today. As I mentioned, in the second quarter, YARTEMLEA generated $32.2 million in gross sales and $28.5 million in net sales, reflecting strong physician adoption and market penetration and a gross-to-net adjustment of 11.5%. Compared with the first quarter, gross sales increased 190% and net sales increased 188%. We'll discuss the launch in more detail in just a bit. Net income for the second quarter was $13.2 million, or $0.18 per share. As we have previously discussed, our reported results include non-cash mark-to-market adjustments related to the derivative embedded in our 2029 convertible notes. Excluding non-cash remeasurements of embedded derivatives and other financial instruments, second quarter non-GAAP adjusted net income was $1.8 million, or $0.02 net income per share. David will walk through the quarter-over-quarter comparisons and accounting details shortly. We ended the quarter with $132 million in cash and investments. Importantly, company-wide, operations provided net positive cash flow in the second quarter of $4.1 million. Our share repurchases and subsequent note repurchases further strengthened our capital structure. During the 6 months ended June 30, we repurchased and retired approximately 843,000 shares of Omeros common stock, nearly 60% of those shares in the second quarter, at a volume-weighted average price of $11.70 per share. Then in July, through two privately negotiated transactions, we repurchased $30.5 million aggregate principal amount of our 9.5% convertible notes due in 2029, reducing the outstanding principal by 43% to $40.3 million. The repurchases also reduced the number of shares issuable upon conversion from approximately 11.4 million to 6.5 million shares. We achieved this reduction at a weighted average cost of $12.21 per underlying conversion share and concurrently eliminated $8.6 million in future interest payments. Together, our open market share repurchases and our negotiated note repurchases have reduced our potential fully diluted share count by 5.8 million shares year-to-date. Turning back to YARTEMLEA, our launch remains focused on 4 priorities: one, educating transplant teams to recognize and treat TA-TMA earlier; two, securing institutional access through pharmacy and therapeutics, or P&T, committee approvals and streamlined ordering; three, ensuring timely reimbursement; and four, demonstrating YARTEMLEA's economic value through Health Economics and Outcomes Research, or HEOR. Together, these priorities are intended to change how transplant centers approach TA-TMA. Historically, particularly at adult transplant centers, TA-TMA often has been treated as a diagnosis of exclusion and considered only after other potential causes are ruled out. We are working to shift that paradigm toward proactive screening, enabling clinicians to identify and treat more patients earlier and ultimately improve transplant outcomes. Execution remains strong. Our field sales organization is actively engaging all 175 U.S. transplant centers. As of June 30, 73 unique accounts had ordered YARTEMLEA, a 143% increase since March 31. As discussed on our first quarter call, pediatric patients initially represented an outsized share of utilization. With rapid adoption at adult transplant centers, however, the mix has shifted significantly. In the second quarter, adult utilization grew at more than twice the rate of pediatric utilization, and adult patients represented approximately 75% of YARTEMLEA sales. This mix is closely approaching the historical 85% 15% split between adult and pediatric transplant procedures in the U.S. Formulary adoption also continues to progress rapidly. By quarter-end, we understand that YARTEMLEA had received P&T committee approval at approximately 55% to 60% across the top 10, 20, 40, and 80 U.S. transplant center cohorts that we track. Ordering frequency also increased meaningfully, indicating deeper utilization within centers. We also achieved key reimbursement milestones during the quarter. The Centers for Medicare and Medicaid Services, or CMS, assigned YARTEMLEA a permanent, product-specific, Healthcare Common Procedure Coding System, or HCPCS, J-code, effective July 1. The J-code establishes a clear and consistent outpatient reimbursement pathway, reduces administrative burden, and supports more predictable payment for providers. CMS also recommended a New Technology Add-on Payment, or NTAP, for YARTEMLEA under the fiscal year 2027 proposed rule for the Inpatient Prospective Payment System, or IPPS, and has now granted the NTAP in the final IPPS rule. The NTAP provides up to $287,000 in additional Medicare reimbursement for inpatient treatment with YARTEMLEA. This is particularly important because Medicare beneficiaries represent approximately 30% of U.S. allogeneic transplant recipients. The NTAP for YARTEMLEA is expected to become effective October 1. Commercial payer experience also remains positive. Prior authorization requests are being approved consistently, and centers receiving appropriate payment reflect growing acceptance of YARTEMLEA among commercial insurers. We are preparing our HEOR analyses for presentation at upcoming scientific meetings and for peer-reviewed publication. We expect these analyses to further demonstrate YARTEMLEA's clinical and economic value and support continued adoption. Overall, early commercial indicators, including strong transplant center engagement, continued formulary and ordering momentum, and payer alignment with the approved label, reinforce our expectation that YARTEMLEA can become the standard of care for TA-TMA. Looking ahead, we continue to pursue expansion opportunities for YARTEMLEA and our broader MASP-2 platform. In June, following an oral explanation before the European Medicines Agency's Committee for Medicinal Products for Human Use, or CHMP, the committee adopted a negative opinion on our marketing authorization application for YARTEMLEA in TA-TMA. We believe the clinical evidence supports approval and have requested re-examination. The application is supported by our pivotal narsoplimab trial data in TA-TMA, survival analyses comparing narsoplimab-treated patients with an external registry of patients who did not receive narsoplimab, and data from more than 220 adult and pediatric patients treated through our expanded access program. This same body of evidence supported YARTEMLEA's FDA approval. As part of the re-examination, an Ad Hoc Expert Group, or AHEG, comprising independent external scientific and clinical experts in hematology, stem cell transplantation, and TA-TMA, will review the evidence and address questions central to CHMP's assessment. The AHEG will hear from Omeros and from transplant experts with direct experience using narsoplimab, and new rapporteurs will review the application. We remain focused on obtaining approval in Europe. Meanwhile, we continue to provide YARTEMLEA to European patients with TA-TMA through our expanded access program, prioritizing children. We also continue to assess opportunities to expand the YARTEMLEA label. We are prioritizing indications with a strong biologic rationale for MASP-2 inhibition, particularly those involving endothelial injury, lectin pathway activation, and thromboinflammation. These encompass an extensive list of indications, including chemotherapy-induced TMA, acute respiratory distress syndrome, or ARDS, and other transplant-related endothelial injury syndromes. We plan to evaluate new indications through preclinical research, investigator-initiated studies, and clinical trials, each as appropriate. By year-end, we expect enrollment to begin in 2 investigator-sponsored and Omeros-supported studies, one evaluating YARTEMLEA in hyperinflammatory ARDS, and the other assessing prophylactic YARTEMLEA in pediatric patients with predictably severe TA-TMA. Our MASP-2 platform extends beyond YARTEMLEA. We are advancing our Phase 2-ready long-acting MASP-2 antibody OMS1029 and an oral small molecule MASP-2 inhibitor program. Both are designed for chronic indications requiring long-term administration, including membranous nephropathy and neurodegenerative diseases such as Parkinson's and Alzheimer's. In Phase 1 clinical trials, OMS1029 demonstrated the clear ability to inhibit MASP-2 over an extended duration with once-quarterly subcutaneous or intravenous dosing. And our small molecule MASP-2 inhibitor is targeting once-daily oral dosing. We are finalizing selection of the initial Phase 2 indication for OMS1029. Clinical drug product and matching placebo have been manufactured and are available. For our MASP-2 small molecule program, we have one ongoing study to complete, after which we expect to select an orally delivered development candidate for that program. Our collaboration with Novo Nordisk also continues to progress smoothly. The Novo transaction provides up to $2.1 billion in upfront and milestone payments, plus royalties ranging from high single digits to the high teens. At closing in the fourth quarter of 2025, we received $240 million in upfront cash, which funded the YARTEMLEA launch and other operations. We also are eligible to receive up to an additional $100 million in near-term milestone payments. Our interactions with Novo remain collaborative and productive, and we continue to provide transition services at Novo's cost. Turning now to development programs beyond our complement inhibitor franchise, our PDE7 inhibitor program evaluating OMS527 for cocaine use disorder remains fully funded by a grant from the National Institute on Drug Abuse, or NIDA. Earlier this year, we met with FDA regarding the agency's request for additional non-clinical information before initiating the inpatient study. That non-clinical work has initiated, and we expect to start enrollment in the inpatient clinical trial by year-end. Based on its mechanism of action and our extensive preclinical data, we believe that OMS527 could be effective across a broad range of addiction and compulsive disorders. Our Targeted Complement Activating Therapy, or T-CAT platform, is a novel class of recombinant antibodies designed to target and directly kill pathogens, including bacteria, fungi, viruses, and parasites. Our initial focus is on infections caused by multidrug-resistant organisms, among medicine's most critical unmet needs. Unlike antimicrobial agents on the market, T-CAT is designed to kill pathogens regardless of resistance profile and without promoting or enhancing resistance. The foundational manuscript describing our T-CAT technology was published in Science Translational Medicine in June of this year. The manuscript details the technology and demonstrates that T-CAT monoclonal antibodies safely and effectively treated infections in translationally relevant murine models of sepsis and pneumonia caused by multiple different drug-resistant bacterial species prioritized by the World Health Organization as posing the greatest threat to human health. The data underscore T-CAT's potential as a next-generation platform with broad applicability across microbial species, including multidrug-resistant pathogens. And we look forward to advancing T-CAT for the clinic. Finally, OncotoX-AML, or OMS805, is the lead program in our oncology platform. It's an engineered biologic designed to treat acute myeloid leukemia, or AML, the most common and one of the deadliest acute leukemias in adults. Across tumor-bearing animal models and in vitro human AML cell line studies, OncotoX-AML has consistently demonstrated efficacy superior to current standards of care, even at very low doses. Importantly, this efficacy was independent of AML-related mutations, including TP53 and FLT3, which historically have been very difficult to treat. In a non-human primate study, a single course of OncotoX-AML produced the desired pharmacologic response, a marked, selective, reversible, and dose-related reduction in myeloid progenitor cells by up to 99%. Treatment was well tolerated with no safety signal of concern. We have entered into agreement with a leading contract biologics manufacturer for process development and clinical supply of OMS805 drug substance, and IND-enabling studies are underway. Given the novelty of the OncotoX program, its potential applicability across hematologic malignancies, and the breadth of our unpublished data and pending patent claims, we plan to limit further public disclosure until OMS805 enters human studies and begins generating clinical data. Working with our Advisory Board of leading AML experts, we are preparing for a first-in-human trial to begin in late 2027. So that concludes our corporate and program update. I'll now turn the call over to David for a more detailed review of our financial results. David?

Thanks, Greg. Our second quarter results reflect continued focus on commercial execution of the YARTEMLEA launch and actions to strengthen our capital structure. Net income for the second quarter of 2026 was $13.2 million, or $0.18 per share, compared with net income of $56.1 million, or $0.78 per share, in the first quarter of 2026. Second quarter results included a $12.1 million non-cash mark-to-market gain on the embedded derivative associated with our 2029 convertible notes and a $700,000 remeasurement loss on our payment obligation for the 2029 note repurchases. By comparison, first quarter results included a $73.1 million non-cash mark-to-market gain on the embedded derivative associated with the 2029 convertible notes. To provide additional visibility into our operating performance, we also present non-GAAP adjusted results that exclude non-cash remeasurements of embedded derivatives and other financial instruments. Excluding these non-cash remeasurements, non-GAAP adjusted net income for the second quarter was $1.8 million, or $0.02 net income per share, compared with a non-GAAP adjusted net loss of $17.1 million, or $0.24 net loss per share, for the first quarter. As of June 30, 2026, we had $132 million in cash and investments, and company-wide net cash provided by operations in the second quarter was $4.1 million. During the second quarter, we repurchased and retired approximately 489,000 shares of our common stock at an average price of $11.70 per share for a total of $5.7 million. Through June 30, 2026, we had repurchased and retired approximately 843,000 shares at the same average price for a total of $9.9 million. In June and July of '26, we entered into agreements for two privately negotiated cash repurchases totaling $30.5 million aggregate principal amount of our 2029 convertible notes. Both transactions closed in July, reducing our outstanding debt, which consists solely of the '29 notes, by approximately 43%, from $70.8 million to $40.3 million. The aggregate purchase price was $60.2 million, plus $200,000 of accrued and unpaid interest. These transactions reduce leverage, future cash interest expense, and potential dilution by opportunistically repurchasing and retiring a portion of the '29 convertible notes. We also reduced the number of shares issuable on conversion from approximately 11.4 million to 6.5 million. As Greg noted, YARTEMLEA maintained strong commercial momentum in the second quarter. Gross product revenues were $32.2 million, all from YARTEMLEA sales, compared with $11.1 million in the first quarter, and net revenues were $28.5 million, compared with $9.9 million in the first quarter. Gross-to-net adjustments were approximately 11.5% compared with approximately 11% in the first quarter and remained within our expectations. These adjustments consisted primarily of chargebacks and distribution fees. Costs and expenses from continuing operations before interest and other income were $28.5 million, an increase of $1.1 million from the first quarter. Under the transition services agreement entered into in connection with the zaltenibart transaction, we continue to be reimbursed for costs incurred in providing transition services, including third-party expenses and internal personnel costs. We also recognized $3.3 million of reimbursement from Novo Nordisk for zaltenibart inventory transfer during the quarter, which we recorded in other income. Interest expense was $7.6 million. The primary components were the DRI royalty obligation and interest on the 2029 convertible notes. Excluding the OMIDRIA royalty obligations to DRI, which is fully offset by amounts received from Rayner and therefore has no economic impact on Omeros, and non-cash amortization of debt issuance costs and discounts, contractual cash interest expense was $1.7 million, down $100,000 from the first quarter. Interest and other income totaled $4.6 million in the second quarter compared with $1.5 million in the first quarter. The increase was primarily attributable to the Novo Nordisk inventory reimbursement. As previously noted, we recorded a $12.1 million non-cash mark-to-market gain on the embedded derivative related to our '29 convertible notes. The change was driven primarily by the decline in our stock price from $10.56 per share at March 31 to $9.51 per share at June 30. Because the derivative's value is closely tied to our stock price, increases in our share price generally produce non-cash losses, while decreases generally produce non-cash gains. This adjustment does not affect our operating performance or liquidity and is excluded from our non-GAAP adjusted results. Following the July note repurchases, future mark-to-market adjustments will reflect the reduced principal balance. In connection with the June agreement to repurchase the first tranche of our 2029 convertible notes comprising $16 million principal amount, we recorded a $1.9 million loss. The loss reflects the difference between the fair value of the payment obligation, the carrying amount of the repurchased notes, net of unamortized discount and issuance cost, and the derecognition of the associated embedded derivative liability. Because the agreements for the second tranche comprising $14.5 million principal amount were entered into in July 2026, the related accounting will be reflected in our third quarter results. Income from discontinued operations in the second quarter was $6.6 million, up $1.8 million from the first quarter, primarily due to a lower remeasurement adjustment. Because U.S. OMIDRIA royalties pass directly to DRI, fluctuations in these payments do not affect our cash position. Now let me turn to our expectations for the third quarter of 2026. We expect total operating expenses from continuing operations to be slightly higher than in the second quarter. Research and development expenses are expected to increase primarily due to increased spending on our OMS805 Oncotox program. Sales and marketing expenses are also expected to increase, reflecting continued investment in the YARTEMLEA commercial infrastructure, marketing, and launch activities. Although we're encouraged by YARTEMLEA's continued commercial momentum, we're not providing revenue guidance at this time. We believe it is prudent to gain additional experience with prescribing trends, patient demand, and market dynamics. We remain focused on expanding physician awareness and disease education and ensuring continued timely reimbursement. Interest and other income are expected to be lower in the third quarter, primarily because the Novo Nordisk inventory reimbursement recognized in the second quarter will not recur. Interest expense is expected to be approximately $6.5 million, reflecting the reduction in the outstanding debt following the repurchases. This estimate excludes potential non-cash adjustments related to the OMIDRIA royalty obligation. Income from discontinued operations is expected to be between $5 million and $6 million, again, excluding any remeasurement adjustments related to the OMIDRIA contract royalty asset. And finally, as a reminder, our reported results will continue to reflect mark-to-market adjustments on the embedded derivative relating to our remaining '29 convertible notes. These adjustments are non-cash. They can be volatile and are driven largely by stock price and other market inputs. We therefore present non-GAAP adjusted income and loss to provide additional visibility into underlying operating performance. And with that, I'll turn the call back over to Greg. Greg?

Thanks, David. Operator, please open the call to questions.

[Operator Instructions] Your first question comes from the line of Brandon Folkes with H.C. Wainwright. Your line is open. Please go ahead.

Maybe just two from me. I guess firstly, with the AstraZeneca, Ultomiris data release, are you having any updated conversations around C5 use at all? Obviously, it's off-label, right? But I guess any color in terms of why a transplant center would still use the C5 at all for these TA-TMA patients. And then secondly, obviously a very good quarter here. Congrats on that, meaningfully ahead of a lot of forecasts. So I wanted to see if you could just try to put this in perspective relative to your internal forecasts, especially the company-wide cash flow forecast you put out earlier. And then along those lines, do you still expect month-to-month variability as you called out at your AGM?

Thanks, Brandon. With respect to the first question regarding C5 inhibition, as you noted, ravulizumab previously missed the endpoint on its open-label pediatric study and then recently reported that it as well had missed the endpoint on its controlled adult trial. So as far as we all understand, and you understand, they did not meet their endpoints across any of the ravulizumab TA-TMA trials. Your question as to whether there remains off-label, primarily eculizumab use, because the dosing, frankly, for ravulizumab is not really conducive to the acute indication of TA-TMA. Eculizumab is more frequently dosed, shorter half-life. There is some continued eculizumab off-label use. We don't really know how much. We don't frankly focus on how much. I'll ask Bill to speak to that and his thoughts around the competition there, which I'll preempt a bit by saying we don't really see it as competition for YARTEMLEA. I think with respect to why there might be continued use for a while of eculizumab. I think, certainly, it's hard to break old habits among physicians, and that is likely what we're seeing. But when you look at the adoption of narsoplimab, the breadth of the adoption, the depth of the adoption, I think that speaks volumes about how physicians see our drug. I also think certainly the safety profile. I mean, let's put aside the efficacy, which we're very pleased with the efficacy that we're seeing with narsoplimab in the commercial setting. But let's look at the safety issues. I mean, narsoplimab is not associated with the same issues as C5 inhibition. It's a biological fact. When you inhibit C5, you inhibit the lytic arm of the classical pathway. That increases the risk of infection. Inhibition of MASP-2 with narsoplimab or YARTEMLEA is upstream. So we're inhibiting the lectin pathway at really near the top of the lectin pathway. And by doing so, we maintain that adaptive immune response. So with respect to why folks would -- physicians would continue for a while to use eculizumab, I think the best answer to that is one of habit and just perhaps not fully understanding the benefits yet that YARTEMLEA brings. But I frankly expect that, that will not be a long-lived challenge for us. But Bill, let me ask you to comment on that.

Sure. Thanks, Greg. Yes, I totally agree. Physicians are humans too, and humans generally do not welcome change with open arms. Eculizumab was their only option for 10 or 12 or 15 years. In peds, it was widely adopted, adults not so much. But in peds, even in peds, we're seeing adoption across centers, use in both first- and second-line. In adults, it's pretty much first-line. So we expect this to be a temporary hiccup to our goal of being really the best-in-class first-line therapy for TA-TMA in both adult and pediatric centers.

Thank you, Bill. Brandon, your next question was how our internal forecasts, I believe, compare to what we've seen. We won't comment today on our internal or external forecast. We won't guide the other part of that question. I think, though, it was around our cash flow forecast. Certainly, we hold to our statement previously that by mid-2027, we expect to be cash flow positive company-wide. And in fact, you saw the result we generated this quarter from operations, $4.1 million of net positive cash. So I think we're quite comfortable holding to that prediction. David, any comments on that?

I would say that states it really well and agree with what you just said, Greg.

Thank you. Anything else, Brandon?

No, other than to say congrats on a really good quarter and a good launch so far.

Your next question comes from the line of Stephen Brozak with WBB.

Congrats on these numbers. I'm thrilled, and I'm sure that patients being treated with yours are also thrilled. Financial questions. Can you just iterate, are any of these numbers from any kind of channel stocking, or do they represent pure numbers for drug going out? And I've got a follow-up after that, please.

Sure. Thanks, Steve. In answer to that first question, no, categorically no. This drug is available to patients from the wholesaler or distributor to the medical centers within 24 hours. So there really is no incentive or rationale to stock or stuff the channel. And frankly, we have seen inventories at about 1.5 weeks of supply, and that has been consistent since Q1, really since the very first quarter. It's been quite consistent at about 1.5 weeks of supply held by the distributors. So the answer to your question is really no. These are, as you put it, I'll use your term, these are pure numbers.

Okay. Last question and I'll jump back in the queue. NTAPs, okay. I've been familiar with different NTAP programs, but your numbers are obviously much, much higher. Can you tell us in terms of reimbursement, can you tell us the NTAP process and how you're set up for that, because that is something that not that many people are familiar with. And I'll hop back into the queue. Thank you.

Sure. NTAP is a CMS program that frankly subsidizes the cost of new drugs entering the market while that period of time occurs over which the DRGs are adjusted to account for those new drugs. So as you know, CMS has set an amount up to $287,000 for a course of treatment for YARTEMLEA. We're quite pleased with that. It's at that roughly 65% cap that CMS will allow. CMS, as you saw in their proposed IPPS rule, recommended the NTAP for YARTEMLEA and subsequently in the final rule confirmed it. So I think they recognize the utility and the importance of the drug, and we're quite pleased that becomes effective or is scheduled to become effective on October 1. Cathy, do you want to add anything else?