OMEROS CORP - Quarter Report: 2019 June (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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For the quarterly period ended June 30, 2019

or

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For the transition period from                      to

Commission file number: 001-34475

OMEROS CORPORATION

(Exact name of registrant as specified in its charter)

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ⌧    No  ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ⌧    No  ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ⌧

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As of August 5, 2019, the number of outstanding shares of the registrant’s common stock, par value $0.01 per share, was 49,287,597.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the Securities Act) and Section 21E of the Securities Exchange Act of 1934 (the Exchange Act) which are subject to the “safe harbor” created by those sections for such statements. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. All statements other than statements of historical fact are “forward-looking statements.” Terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “goal,” “intend,” “likely,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would,” and similar expressions and variations thereof are intended to identify forward-looking statements, but these terms are not the exclusive means of identifying such statements. Examples of these statements include, but are not limited to, statements regarding:

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Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks, uncertainties and other factors described in this Quarterly Report on Form 10-Q under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in our other filings with the U.S. Securities and Exchange Commission (SEC). Given these risks, uncertainties and other factors, actual results or anticipated developments may not be realized or, even if substantially realized, may not have the expected consequences to or effects on our company, business or operations. Accordingly, you should not place undue reliance on these forward-looking statements, which represent our estimates and assumptions only as of the date of the filing of this Quarterly Report on Form 10-Q. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual results in subsequent periods may materially differ from current expectations. Except as required by applicable law, we assume no obligation to update or revise any forward-looking statements contained herein, whether as a result of any new information, future events or otherwise.

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OMEROS CORPORATION

FORM 10-Q FOR THE QUARTER ENDED June 30, 2019

INDEX

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

OMEROS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(unaudited)

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See accompanying Notes to Condensed Consolidated Financial Statements

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OMEROS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share data)

(unaudited)

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See accompanying Notes to Condensed Consolidated Financial Statements

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OMEROS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

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See accompanying Notes to Condensed Consolidated Financial Statements

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OMEROS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1—Organization and Significant Accounting Policies

Organization

We are a commercial-stage biopharmaceutical company committed to discovering, developing and commercializing small-molecule and protein therapeutics for large-market as well as orphan indications targeting inflammation, complement-mediated diseases, disorders of the central nervous system, and immune-related diseases, including cancers. Our first drug product, OMIDRIA, is marketed in the United States (U.S.) for use during cataract surgery or intraocular lens replacement.

Basis of Presentation

Our condensed consolidated financial statements include the financial position and results of operations of Omeros Corporation (Omeros) and our wholly owned subsidiaries. All inter-company transactions have been eliminated and we have determined we operate in one segment. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The information as of June 30, 2019 and December 31, 2018 and for the three and six months ended June 30, 2019 and 2018 includes all adjustments, which include normal recurring adjustments, necessary to present fairly our interim financial information. The Condensed Consolidated Balance Sheet at December 31, 2018 has been derived from our audited financial statements but does not include all of the information and footnotes required by GAAP for audited annual financial information.

The accompanying unaudited condensed consolidated financial statements and related notes thereto should be read in conjunction with the audited consolidated financial statements and related notes thereto that are included in our Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the U.S. Securities and Exchange Commission (SEC) on March 1, 2019.

We continue to advance a series of clinical and preclinical programs (including three programs currently in Phase 3). The Centers for Medicare & Medicaid Services (CMS) granted transitional pass-through reimbursement status for OMIDRIA from January 1, 2015 through December 31, 2017 for patients covered by Medicare Part B. On October 1, 2018, OMIDRIA pass-through reimbursement was reinstated for a two-year period and OMIDRIA net sales are at record levels. We believe OMIDRIA sales will continue to grow throughout the remainder of 2019 and into 2020. While we believe that OMIDRIA will obtain permanent separate payment beyond the scheduled expiration of pass-through reimbursement on September 30, 2020, we cannot at this time predict with precision the extent or duration of growth in OMIDRIA revenues. As a result, despite our record OMIDRIA sales, meaningful growth in OMIDRIA sales in the second half of 2019 and 2020 are not included in the determination regarding our prospects as a going concern. Similarly, we are unable to include in the determination amounts available under our revolving line of credit or any proceeds from debt transactions or other financing instruments despite our successful track record in accessing capital through these avenues. We also have not included any potential partnerships related to our products or product candidates. The conditions described above, when evaluated within the constraints of the accounting literature, raise substantial doubt with respect to our ability to meet our obligations through August 8, 2020 and, therefore, to continue as a going concern.

We plan to continue to fund a portion of our operations through proceeds from sales of OMIDRIA and, if necessary, through other revenue sources and financial instruments as noted above. If these capital sources, for any reason, are needed but inaccessible, it would have a significantly negative effect our financial condition. Should it be necessary to manage our operating expenses, we would reduce our projected cash requirements through reduction of our expenses by delaying clinical trials, reducing selected research and development efforts, and/or implementing other restructuring activities.

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The accompanying consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to our ability to continue as a going concern.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant items subject to such estimates include revenue recognition, stock-based compensation expense and accruals for clinical trials, manufacturing of drug product and clinical drug supply and contingencies. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances; however, actual results could differ from these estimates.

Revenue Recognition

When we enter into a customer contract, we perform the following five steps: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation.

Product Sales, Net

We generally record revenue from product sales when the product is delivered to our wholesalers. Product sales are recorded net of wholesaler distribution fees and estimated chargebacks, rebates, returns and purchase-volume discounts. Accruals or allowances are established for these deductions in the same period when revenue is recognized, and actual amounts incurred are offset against the applicable accruals or allowances. We reflect each of these accruals or allowances as either a reduction in the related accounts receivable or as an accrued liability depending on how the amount is expected to be settled.

Right-of-Use Assets and Related Lease Liabilities

On January 1, 2019, we adopted Accounting Standards Update (ASU) 2016-02, Leases, (Topic 842) using a modified retrospective approach versus recasting the prior periods presented. We elected the package of practical expedients permitted under the transition guidance, which allowed us to carryforward our historical assessment of whether (i) contracts contain leases, (ii) lease classifications and (iii) initial direct costs. Upon adoption we recognized right-of-use assets and lease liabilities of $17.7 million and $26.4 million, respectively, in our Consolidated Balance Sheet. The balance of the net right-of-use asset included the reversal of the outstanding balance of deferred rent of $8.7 million.

We record operating leases on our Consolidated Balance Sheet as right-of-use assets and recognize the related lease liabilities equal to the fair value of the lease payments using our incremental borrowing rate when the implicit rate in the lease agreement is not readily available. We recognize variable lease payments, when incurred. Costs associated with operating lease assets are recognized on a straight-line basis within operating expenses over the term of the lease.

We record finance leases on our Consolidated Balance Sheet as a component of property and equipment and amortize these assets within operating expenses on a straight-line basis to their residual values over the shorter of the term of the underlying lease or the estimated useful life of the equipment. The interest component of a finance lease is included in interest expense and recognized using the effective interest method over the lease term.

We account for leases with initial terms of 12 months or less as operating expenses on a straight-line basis over the lease term.

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Advance Payments

Advance payments for goods or services that will be used or rendered for future research and development activities are deferred and then recognized as an expense as the related goods are delivered or the services are performed, or when the goods or services are no longer expected to be provided.

Stock-Based Compensation

On January 1, 2019, we adopted ASU 2018-07, Compensation — Stock Compensation, (Topic 958) which simplifies the accounting for share-based payments granted to non-employees for services by aligning it with the accounting for share-based payments to employees and directors, with certain exceptions. The adoption was immaterial to our consolidated financial statements.

Stock-based compensation expense is recognized for all share-based payments based on estimated fair values as of the date of grant. The fair value of our stock options is calculated using the Black-Scholes option-pricing model which requires judgmental assumptions including volatility, forfeiture rates and expected option life. We use the straight-line method to allocate stock-based compensation cost to reporting periods over each optionee’s requisite service period, which is generally the vesting period.

Recent Accounting Pronouncement Not Yet Adopted

In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, Financial Instruments — Credit Losses, (Topic 326) which changes how entities account for credit losses on most financial assets and certain other instruments, and expands disclosures. The standard is effective for annual and interim periods beginning after December 15, 2019 with early adoption permitted. We expect to adopt the standard on January 1, 2020 and are still in the process of evaluating the effect of adoption on our consolidated financial statements and disclosures.

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Note 2—Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and dilutive common share equivalents outstanding for the period, determined using the treasury-stock method. Common share equivalents are excluded from the diluted net loss per share computation if their effect is anti-dilutive.

The basic and diluted net loss per share amounts for the three and six months ended June 30, 2019 and 2018 were computed based on the shares of common stock outstanding during the respective periods. Potentially dilutive securities excluded from the diluted loss per share calculation are as follows:

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Note 3—Certain Balance Sheet Accounts

Accounts Receivable, net

Accounts receivable, net consist of the following:

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Trade receivables are shown net of $2.1 million and $0.4 million of chargeback and product return allowances as of June 30, 2019 and December 31, 2018, respectively.

Inventory

Inventory consists of the following:

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Property and Equipment, Net

Property and equipment, net consists of the following:

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For the six months ended June 30, 2019 and 2018, depreciation and amortization expenses were $0.8 million and $0.4 million, respectively.

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Accrued Expenses

Accrued expenses consist of the following:

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Note 4—Fair-Value Measurements

As of June 30, 2019, and December 31, 2018, all investments were classified as short-term and available-for-sale on the accompanying Condensed Consolidated Balance Sheets. Investment income, which was included as a component of other income, consists of interest earned.

On a recurring basis, we measure certain financial assets at fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The accounting standard establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required:

Level 1—Observable inputs for identical assets or liabilities, such as quoted prices in active markets;

Level 2—Inputs other than quoted prices in active markets that are either directly or indirectly observable; and

Level 3—Unobservable inputs in which little or no market data exists, therefore they are developed using estimates and assumptions developed by us, which reflect those that a market participant would use.

Our fair value hierarchy for our financial assets and liabilities measured at fair value on a recurring basis are as follows:

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Cash held in demand deposit accounts of $4.0 million and $5.9 million is excluded from our fair-value hierarchy disclosure as of June 30, 2019 and December 31, 2018, respectively. There were no unrealized gains or losses associated with our short-term investments as of June 30, 2019 or December 31, 2018. The carrying amounts reported in the accompanying Condensed Consolidated Balance Sheets for receivables, accounts payable, other current monetary assets and liabilities approximate fair value.

Note 5—Notes Payable

In October 2016, we entered into a term loan agreement with CRG Servicing LLC (the CRG Loan) and, in November 2016, borrowed $80.0 million. In May 2018, we borrowed the remaining $45.0 million available under the CRG Loan and issued warrants to purchase up to 200,000 shares of our common stock with an exercise price of $23.00 per share. The warrants have a five-year term and remained outstanding as of June 30, 2019.

In November 2018, we issued unsecured convertible senior notes (see Note 6 - “Convertible Senior Notes”) and repaid the CRG Loan. Upon repayment, we incurred a loss on early extinguishment of debt of $13.0 million.

In August 2019, we entered into a Loan and Security Agreement with Silicon Valley Bank (the SVB Loan Agreement), which provides for a $50 million revolving line of credit facility. Under the SVB Loan Agreement we may draw at our discretion, on a revolving basis, up to the lesser of $50 million and a borrowing base of 85% of eligible accounts receivable, less certain reserves. The SVB Loan Agreement does not encumber any of our intellectual property or development program inventories; our obligations under the SVB Loan Agreement are secured by our remaining assets.

Note 6—Convertible Senior Notes

On November 15, 2018, we issued at face value $210.0 million aggregate principal amount of our 6.25% Convertible Senior Notes due 2023 (the Convertible Notes). The Convertible Notes are unsecured and accrue interest at an annual rate of 6.25% per annum, payable semi-annually in arrears on May 15 and November 15 of each year, beginning on May 15, 2019.

The Convertible Notes will be convertible into cash, shares of our common stock or a combination thereof, as we elect at our sole discretion. The initial conversion rate is 52.0183 shares of our common stock per $1,000 of note principal (equivalent to an initial conversion price of approximately $19.22 per share of common stock), subject to adjustment in certain circumstances. As of June 30, 2019, all Convertible Notes remain outstanding.

The balance of our Convertible Notes at June 30, 2019 and December 31, 2018, is as follows:

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For more details on our Convertible Notes see Part II, Item 8, Note 8 - “Convertible Senior Notes” in our Annual Report on Form 10-K for the year ended December 31, 2018.

Note 7—Lease Liabilities

We have operating leases related to our office and laboratory space. The initial term of the leases is through November 2027 and we have two options to extend the lease term, each by five years. We have finance leases for certain laboratory and office equipment that have lease terms expiring through December 2021.

As described further in Note 1 – Organization and Significant Accounting Policies, on January 1, 2019, we adopted ASU 2016-02, Leases, (Topic 842) using a modified retrospective approach versus recasting the prior periods presented. The lease-related assets and liabilities recorded on the balance sheet are as follows. Prior year interim financial statements were not recast under the new standard and, therefore, those amounts are not presented below.

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The components of total lease costs are as follows:

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The supplemental cash flow information related to leases during 2019 is as follows:

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The future maturities of our lease liabilities as of June 30, 2019 are as follows:

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As of June 30, 2019, we have committed to additional leased space in The Omeros Building that will commence in September and October 2019. The expected lease term is approximately seven years and the monthly lease payments are approximately $0.1 million over the expected lease term.

Note 8—Commitments and Contingencies

Contracts

We have various agreements with third parties that would collectively require payment of termination fees totaling $20.4 million as of June 30, 2019 if we cancel the work within specific time frames, either prior to commencing or during performance of the contracted services.

Development Milestones and Product Royalties

We have licensed a variety of intellectual property from third parties that we are currently developing or may develop in the future. These licenses may require milestone payments during clinical development as well as low single to low double-digit royalties on the net income or net sales of the product. For the three and six months ended June 30, 2019 and the year ended December 31, 2018, development milestones incurred were insignificant and we did not owe any royalties.

Note 9—Shareholders’ Deficit

Common Stock

For the six months ended June 30, 2019, we received proceeds of $1.7 million upon the exercise of stock options which resulted in the issuance of 184,365 shares of common stock. For the six months ended June 30, 2018, we received proceeds of $2.9 million upon the exercise of stock options and warrants which resulted in the issuance of 286,829 shares of common stock.

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Warrants

In connection with the April 2018 amendment to the CRG Loan, we issued warrants to purchase up to 200,000 shares of our common stock with an exercise price of $23.00 per share and total fair value of $1.4 million. The warrants have a five-year term and remain outstanding as of June 30, 2019.

Interim Condensed Consolidated Statements of Shareholders’ Deficit

The changes in interim balances of the components of our shareholders’ deficit are as follows:

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Note 10—Stock-Based Compensation

Stock-based compensation expense includes the amortization of stock options granted to employees and non-employees and has been reported in our Condensed Consolidated Statements of Operations and Comprehensive Loss as follows:

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The fair value of each option grant to employees, directors and non-employees is estimated on the date of grant using the Black-Scholes option-pricing model. The following assumptions were applied to all stock option grants:

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Stock option activity for all stock plans and related information is as follows:

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At June 30, 2019, there were 3,721,314 unvested options outstanding that will vest over a weighted-average period of 2.8 years and 5,420,024 shares were available to grant which includes shares registered in June 2019 under the Omeros Corporation 2017 Omnibus Incentive Compensation Plan, as amended and restated effective June 7, 2019. The total estimated compensation expense yet to be recognized on outstanding options is $30.3 million.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

Overview

We are a commercial-stage biopharmaceutical company committed to discovering, developing and commercializing small-molecule and protein therapeutics for large-market as well as orphan indications targeting inflammation, complement-mediated diseases, disorders of the central nervous system, and immune-related diseases, including cancers.

Our drug product OMIDRIA^® is marketed in the United States for use during cataract surgery or intraocular lens replacement to maintain pupil size by preventing intraoperative miosis (pupil constriction) and to reduce postoperative pain. In our pipeline we have clinical-stage development programs focused on complement-associated thrombotic microangiopathies, complement-mediated glomerulonephropathies, and addictive and compulsive disorders. In addition, we have a diverse group of preclinical programs and two platforms: one capable of unlocking new G protein-coupled receptor (GPCR) drug targets and the other used to generate antibodies. For OMIDRIA and each of our product candidates and our programs, we have retained control of all commercial rights.

Commercial Product - OMIDRIA^® (phenylephrine and ketorolac intraocular solution) 1%/0.3%

OMIDRIA is approved by the FDA for use during cataract surgery or intraocular lens replacement to maintain pupil size by preventing intraoperative miosis (pupil constriction) and to reduce postoperative ocular pain. Outside of the U.S., we have received approval from the European Commission (EC) to market OMIDRIA in the European Economic Area (EEA) for use during cataract surgery and other intraocular lens replacement procedures for maintenance of intraoperative mydriasis (pupil dilation), prevention of intraoperative miosis and reduction of acute postoperative ocular pain.

OMIDRIA is a proprietary drug product containing two active pharmaceutical ingredients: ketorolac, an anti-inflammatory agent, and phenylephrine, a mydriatic, or pupil dilating, agent. Cataract and other lens replacement surgery involves replacement of the original lens of the eye with an artificial intraocular lens. These procedures are typically performed to replace a lens opacified by a cataract and/or to correct a refractive error. OMIDRIA is added to standard irrigation solution used during cataract and lens replacement surgery and is delivered intracamerally, or within the anterior chamber of the eye, to the site of the surgical trauma throughout the procedure. Preventing pupil constriction is essential for these procedures and, if miosis occurs, the risk of damaging structures within the eye and other complications increases, as does the operating time required to perform the procedure.

We launched OMIDRIA in the U.S. in the second quarter of 2015 and sell OMIDRIA primarily through wholesalers which, in turn, sell to ambulatory surgery centers (ASCs) and hospitals. The Centers for Medicare & Medicaid Services (CMS), the federal agency responsible for administering the Medicare program, granted transitional pass-through reimbursement status for OMIDRIA in 2014, effective from January 1, 2015 through December 31, 2017. Pass-through status allows for separate payment (i.e., outside the packaged payment rate for the surgical procedure) under Medicare Part B. In March 2018, the Consolidated Appropriations Act of 2018 (the Appropriations Act) was signed into law. The Appropriations Act included a provision by which Congress extended pass-through reimbursement status for a small number of drugs, including OMIDRIA, used during procedures performed on Medicare Part B fee-for-service patients for an additional two years, running from October 1, 2018 until October 1, 2020.

We continue to pursue permanent separate reimbursement for OMIDRIA. In the 2019 final rule for CMS’ outpatient prospective payment system (OPPS), CMS indicated that, in the ASC setting, it will separately pay for certain non-opioid drugs used during surgery that have an FDA-approved indication for postoperative pain relief and are currently packaged with the procedure in calendar year 2019. In its OPPS proposed rule for 2020, CMS indicates an intention to continue its policy of paying separately for non-opioid drugs indicated for postoperative pain relief when

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used during surgery. The 2020 proposed rule notes that non-opioid drugs that are indicated for reduction of post-operative pain may warrant separate payment if there is evidence to show that such drugs help to deter or avoid prescription opioid use and addiction and that packaged payment presents a demonstrated barrier to access for such drugs. Although OMIDRIA is not specifically named in the proposed rule, we believe that we will soon have adequate evidence to demonstrate that OMIDRIA meets these criteria and that the drug warrants separate payment after the scheduled expiration of pass-through reimbursement on September 30, 2020. We are continuing to confirm this belief and to pursue other avenues of permanent separate payment or similar reimbursement for OMIDRIA beyond September 30, 2020; however, we cannot provide assurance that these efforts will be successful. For more information regarding OMIDRIA reimbursement, see “Results of Operations” below.

We also continue to pursue expansion of reimbursement for OMIDRIA by Medicare Advantage and other third-party payers. CMS recently assigned a permanent product-specific Healthcare Common Procedure Coding System (HCPCS) J-code for OMIDRIA, which will become effective October 1, 2019. J-codes are reimbursement codes used by commercial insurance plans, Medicare, Medicare Advantage, and other government payers for drugs like OMIDRIA that are administered by a physician. Claims submission and payment are standardized with a J-code, which facilitates and streamlines billing and reimbursement across payer categories. We expect many of the commercial insurers that previously would not reimburse providers for OMIDRIA under the drug’s current temporary HCPCS C-code to begin providing reimbursement for OMIDRIA under the newly assigned permanent J-code.

In July 2018, we reported that OMIDRIA had been placed on the market in the EU, on a limited basis, which maintained the ongoing validity of the European marketing authorization for OMIDRIA. Decisions about price and reimbursement for OMIDRIA are made on a country-by-country basis and may be required before marketing may occur in a particular country. At this time, we do not expect to see significant sales of OMIDRIA in any countries within the EEA or other international territories.

Clinical Development Programs

Our clinical stage development programs include:

Phase 3 clinical programs are underway for narsoplimab in: hematopoietic stem cell transplant-associated thrombotic microangiopathy (HSCT-TMA); Immunoglobulin A (IgA) nephropathy; and atypical hemolytic uremic syndrome (aHUS). In addition, we have an ongoing Phase 2 clinical trial evaluating narsoplimab in renal diseases, currently focused on patients with IgA nephropathy.

Narsoplimab has received multiple designations from the FDA and from the EMA across the three current indications. These include:

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Hematopoietic stem cell transplant-associated TMA is a significant, costly and often lethal complication of stem cell transplants. HSCT-TMA is a systemic, multifactorial condition caused by endothelial cell damage induced by infection, graft-versus-host disease, and therapies used as part of stem cell transplantation. There is growing recognition within the stem-cell transplant community of the high incidence and severity of this transplant complication. Historically, the literature-based incidence of HSCT-TMA has been varied, with some smaller centers and national registries reporting low numbers of cases while major research institutions reported incidences in the range of 15-25 percent. More recently, however, as TMA has become better understood and identified, its reported occurrence has been approximately 40 percent in patients undergoing allogeneic hematopoietic stem cell transplants in centers that screen for the disease. The condition is associated with an increased mortality rate and, in those patients who survive, it often causes chronic kidney damage. There are currently no approved products for the treatment or prevention of HSCT-TMA. 

Previously announced results from patients with HSCT-TMA in our ongoing Phase 3 program demonstrated a greater than 16-fold increase in median overall survival and a greater than 5-fold increase in 100-day survival in patients treated with narsoplimab compared to a literature-based control. In addition to and consistent with the survival data reported, assessments of platelet count, lactate dehydrogenase, and haptoglobin - all markers of TMA activity - demonstrated clinically meaningful and statistically significant improvements in the HSCT-TMA patients treated with narsoplimab. Improvement in transfusion requirements and organ function were also observed. No safety concerns were identified. Adverse events and causes of death were consistent with the patients’ underlying diseases.

Based on communications with the FDA and the EMA regarding expectations for our marketing applications (BLA and MAA), we plan to submit for regulatory approval of narsoplimab for HSCT-TMA with data from patients already enrolled in the ongoing HSCT-TMA clinical trial and from HSCT-TMA patients previously or currently being treated with narsoplimab under compassionate use protocols. We have also agreed with the FDA on the primary endpoint criteria to be used for approval. The response-based primary endpoint for HSCT-TMA requires a showing of both a beneficial effect on the underlying HSCT-TMA disease process and a meaningful improvement in patients’ clinical status. The endpoint includes laboratory measures and markers of organ function as well as platelet and red blood cell transfusion burden. We are collecting the additional data needed for our marketing applications from the medical records of patients already treated with narsoplimab in our HSCT-TMA clinical trial or under a compassionate use protocol. As part of a successful pre-BLA meeting directed to chemistry, manufacturing and controls (CMC), we have also discussed with FDA the CMC requirements for the narsoplimab BLA for HSCT-TMA and are confident in our ability to meet them. We have submitted to FDA our proposed schedule for rolling BLA submission. The nonclinical sections of the BLA are expected to comprise the first module of the rolling BLA submission.

In Europe, we have already applied for, and EMA confirmed, eligibility to EMA’s centralized review procedure, which allows submission of a single MAA that, if approved, authorizes the product to be marketed in all EU member states and EEA countries rather than requiring separate national approvals. We are also finalizing our Pediatric Investigational Plan in Europe, which is a prerequisite for submission of the MAA. The EMA has appointed rapporteurs to work with us through the MAA submission process, and meetings with our rapporteurs have already begun. The rapporteurs are members of the EMA’s Committee for Human Medicinal Products (CHMP) and will jointly coordinate CHMP’s evaluation of our MAA for narsoplimab for the treatment of HSCT-TMA. We are engaged with the appointed rapporteurs regarding the path to European approval of narsoplimab for HSCT-TMA and intend to harmonize the contents of the BLA and MAA.

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In our IgA nephropathy program, patient enrollment continues in the narsoplimab Phase 3 clinical trial, ARTEMIS-IGAN. The single Phase 3 trial design is a randomized, double-blind, placebo-controlled multicenter trial in patients at least 18 years of age with biopsy-confirmed IgA nephropathy and with 24-hour urine protein excretion greater than one gram per day at baseline on optimized renin-angiotensin system (RAS) blockade. This trial includes a run-in period. Initially, patients are expected to receive an IV dose of study drug each week for 12 weeks; additional weekly dosing can be administered to achieve optimal response. The primary endpoint, which we believe could suffice for full or accelerated approval depending on the effect size, is reduction in proteinuria at 36 weeks after the start of dosing. The trial is designed to allow intra-trial adjustment in sample size. For the purposes of safety and efficacy assessments, the initial sample size for the proteinuria endpoint is estimated at 140 patients in each of the treatment and placebo groups. This will include a subset of patients with high levels of proteinuria (i.e., equal to or greater than 2 g/day) at baseline, and a substantial improvement at 36 weeks in this subset of patients alone could potentially form the basis for approval. We believe that the trial design will allow assessment for either full or accelerated approval at 36 weeks based on proteinuria results either (1) across the general population of study patients or (2) in the high-proteinuria subset of patients.

The Phase 3 clinical program in patients with aHUS, in which patient enrollment is ongoing, consists of one Phase 3 clinical trial – a single-arm (i.e., no control arm), open-label trial in patients with newly diagnosed or ongoing aHUS. This trial is targeting approximately 40 patients for full approval in Europe and accelerated approval in the U.S. with approximately 80 total patients required by FDA for full approval in the U.S.

Preclinical Development Programs and Platforms

Our preclinical programs and platforms include:

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Financial Summary

For the three months ended June 30, 2019 and 2018, we recognized net losses of $14.5 million and $33.7 million, respectively, and our OMIDRIA revenues were $26.8 million and $1.7 million, respectively. During the period from January 1, 2018 to September 30, 2018, OMIDRIA was not reimbursed separately when used for procedures involving patients covered by Medicare Part B. Separate reimbursement payment for OMIDRIA was restored effective October 1, 2018 through September 30, 2020 as a result of securing a two-year extension of pass-through reimbursement status for use of OMIDRIA during procedures performed on Medicare Part B fee-for-service patients. See “Commercial Product - OMIDRIA” earlier in this section for additional details regarding the pass-through reimbursement status for OMIDRIA.

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We expect our net losses will continue until we derive sufficient revenues from sales of OMIDRIA and/or other sources, such as licensing, product sales and other revenues from our product candidates, that are sufficient to cover our operating expenses and debt service obligations.

As of June 30, 2019, we had $31.8 million in cash and cash equivalents and short-term investments available for general corporate use and $28.5 million in accounts receivable, net.

Results of Operations

Revenue

Our revenue consists of OMIDRIA product sales to ASCs and hospitals in the U.S. Our product sales, net are as follows:

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During the three and six months ended June 30, 2019, OMIDRIA revenue was $26.8 million and $48.5 million as compared to $1.7 million and $3.2 million for the three and six months ended June 30, 2018. The increase in revenue during the three and six months ended June 30, 2019 compared to the same period in prior year was due to significantly increased demand for OMIDRIA by ASCs and hospitals following the reinstatement of transitional pass-through reimbursement status for OMIDRIA on October 1, 2018. As compared to the first quarter of 2019, OMIDRIA revenue for the second quarter of 2019 increased $5.0 million, or 22.8%, from $21.8 million due to continuous increased demand for OMIDRIA.

We anticipate that OMIDRIA product sales, net, will continue to increase during 2019; however, we are unable to predict with precision the magnitude of those increases at the current time due to the recent reinstatement of pass-through status for OMIDRIA. In addition, there is uncertainty regarding the extent to which the recent issuance by CMS of a product-specific J-code for OMIDRIA will positively impact sales of OMIDRIA and uncertainty regarding what impact, if any, the issuance by CMS of the OPPS final rule for 2020 may have on sales of OMIDRIA.

Gross-to-Net Deductions

We record OMIDRIA product sales net of estimated chargebacks, rebates, distribution fees and product returns. These deductions are generally referred to as gross-to-net deductions. Our total gross-to-net provision for the three and six months ended June 30, 2019 was 28.2% and 27.7% of gross OMIDRIA product sales, respectively. This compares to 20.4% and 24.8% for the three and six months ended June 30, 2018, respectively. The primary reason for the increase in gross-to-net deductions as a percentage of sales is due to increased chargebacks and rebates under our volume-purchase discount program. We expect our gross-to net deductions will increase slightly from the three and six months ended June 30, 2019 during the remainder of 2019.

A summary of our gross-to-net related accruals for the six months ended June 30, 2019 is as follows: