I appreciate the sentiment, as OMER has been a big chunk of my portfolio for the past 4 years, but your spin is not very realistic. First off, if management "learned" about the seasonal conference issues in time to train the staff, then they had time to provide investors a heads-up on the seasonal softness in sales - the didn't announce Q4 results until Mar 8th and the obviously knew about the slow start to Q1 and decided not to disclose. That is part of the reason the shares tanked - the CEO is hiding things - instead of disclosing what is going on, he hides behind platitudes. Secondly, There never was or should have been the risk of a "large dilutive secondary", so the idea that we have been spared that risk by management's nimble actions is a joke. Assuming they need the full $20M to get to cash flow breakeven, that would have been a 5% dilution using the ATM at $10. Finally, the idea that they are holding out for the "perfect" EU partnership is ridiculous - the patent clock is ticking and any potential partner's willingness to pay a higher cut to OMER is dwindling along with the period of exclusivity.
If you want to tout management's launch of Omidria, I'm on board - the way they established and tested reimbursement to ensure docs would have no risk of coming out of pocket to even test Omidria before they launched was critical and they nailed it - if they hadn't done that, docs may have bailed on the drug before even figuring out if it worked. Beyond that, I have not been impressed with management - if it wasn't for the potential blockbuster value of OMS721, I would have bailed by now.
The original loan agreement specified they needed to hit $70M of sales in calendar 2016 in order to get access to the remaining $20M. Obviously, management entered this agreement predicting they would be cash flow positive by "mid-year" and that they wouldn't need the extra $20M to meet normal operations during the year - they failed miserably on that prediction.
EU patients going to the ME for cheaper treatment may make sense for elective treatments, but I can't imagine most lens replacement surgeries are elective? Who knows, but something doesn't smell right with their lack of an EU marketing plan.
eviradr - An EU partnership would be nice, but I doubt it would bring any upfront money - Omidria's sale price per patient is too low to warrant that. Who knows, OMER may be holding out for a bigger cut of the sales, but the fact that it has been over a year since Omidria was approved in the EU tells me there is some fundamental flaw that renders Omidria's value in the EU to be not that attractive? The fact that the first partnership they announce is in the Middle East was telling - I've never heard a drug company announce a ME marketing venture before?
You asked - the company answered! I'm actually surprised they were able to get the full $20M - I thought Oxford might cough up another $10M, but then force them to use the ATM to some extent. Will the stock price respond or is the market still in a wait-and-see mode with Omidria sales? Either way, OMS721 will be the real driver of this stock over the next year.
johnny - I agree for 2015 they did not have enough data to give guidance and obviously if they did give guidance for Q1 2016, they would have been blindsided by the seasonality issues. The problem is they are running out of cash and analysts are trying to figure out how much capital they might need, so they have a critical issue at hand for the rest of the year. The fact that they are guiding to cash flow positive "later" this year means they have done some very precise forecasting - share it - scale it back if you want to be conservative, but share it! The CEO's ridiculous discussion about whether there was a difference between "middle of the year" vs "later this year" was mind-numbing. Theoretically, they are going to be in an aggressive revenue growth stage with Omidria for years to come - there will always be issues extrapolating future revenue from recent history, but when the company is facing a potential capital shortfall, the CEO needs make a confident statement of having it under control (or at least establish a maximum exposure) and Dr. D did neither - he hid behind wishy-washy statements about how much capital they might need and where they were going to get it.
I don't think they necessarily have to announce when they sell shares under the ATM - they are obviously restricted to certain time periods, but if they were to say sell 50,000 shares a day over 20 trading days to raise $10M, I don't think they have to disclose that until they are done, but I'm not sure?
While I am disappointed with the management of cash flow and expectations, I am not disappointed with the US launch of Omidria. They officially launched the drug in April of last year and they were facing some skepticism from KOLs and uncertainty on reimbursement issues - they have crushed any reimbursement issues and the KOLs are falling into place based on actual performance of the drug. I always thought the analyst revenue estimates for the early quarters were too aggressive - as they noted in the current call, it is a 8-12 week process to get the doctor to test the drug and transition to a dedicated user. The problem is that rather than manage the analyst expectations, they danced around the issue of revenue guidance and led everyone to believe that with the $70M loan commitment in early 2016 that they had enough capital to get to breakeven and they blew it.
The reason he couldn't commit to the remaining $20M available under their existing credit agreement is that it may not be available - they have to meet certain undisclosed revenue targets in order for the money to be available. Obviously, if they thought they would hit those targets over the next quarter, when they need the money, they would have disclosed that. My guess is that they may be trying to renegotiate the targets, so they get access to another $10M - otherwise, it is the ATM - at this stage, expecting some kind of collaboration money over the next few months seems highly unlikely.
That is what is so frustrating - the CEO laughs off the question of why the guidance changed from cash flow positive by the "middle of the year" to "later this year", suggesting that it isn't really a change. Even if you accept the premise that the middle of the year could include August or September, it is clear that they don't expect to have a cash flow positive month until Q4. In the grand scheme of things, a few months difference is not that material, but when you are running out of cash, it is a different story. The CEO's cavalier and non-commital statements breed uncertainty and give the shorts the window they need to take the stock down.
That's the problem - there was a lot of data "insinuating" what the revenue level might be, but the guy wouldn't put a stake in the ground and give guidance for Q2 or the rest of the year. Stating that they will be "cash flow positive later this year" implies they have a monthly revenue number in mind that they could achieve in the late Q3 or Q4 time frame. If they had $50M of cash on hand, the soft Q1 and the insinuation of an explosive Q2 would have been fine, but his wishy-washy guidance revenue guidance and his non-committal statements on where they are going to get the capital they need or how much they will need didn't provide any comfort.
The reality is they will probably need less than $10M to bridge them to a comfortable cash flow position - even at the 15% haircut, that is 1M shares - less than 3% dilution. If he would have said "our priority is to raise the necessary capital through debt or a pipeline collaboration, but if we use the ATM, we will not sell more than 2M shares", would it have sold off 15%? If they had enough cash, the OMS721 progress alone is enough to support the current market cap, but his non-committal statements on revenue and cash gave no confidence. By early next year you will have a profitable company with a blockbuster waiting for accelerated approval and the stock is trading at 50% below where they sold shares in Jan 2015 - that is bad management.
I agree - the Q1 sales miss is incidental, but the rest are valid issues. He has actually been bragging about the GPCR platform for more than 2 years - they supposedly have a patented lock on numerous drug targets, but have no licensing for any of them? Omidria has been approved for sale in Europe since May of last year - you can argue that it takes time to negotiate foreign marketing deals, but they should have been pursuing partners while it was being reviewed. I'm not sure how large the EU opportunity for Omidria is, but if you go through all the expense and time to get a drug approved and then just let it sit for a year (as the patent clock ticks away), that is not a good sign for management competence.
Per their quarterly financials they burned through $16M in the quarter and have $13M of unrestricted cash left. Assuming they generate $4M of increased sales in Q2, they will be essentially tapped out, so they will definitely need to. Their breakeven revenue number is probably $7M+ per month, which I'm guessing they won't hit until mid-Q4?
Obviously, the issue is cash/potential dilution. Ideally, they will partner something in the pipeline for some up-front money and avoid any ATM transactions, but the "market" is not going to wait and see - they are bailing out.
So, Q2 sales will probably come in around $12M - then in order to hit the current annual revenue estimate of $49M, they need to do $30M of sales the rest of the year, which should be no problem - 20% sequential growth from $12M would be $14.4M in Q3 and $17.3M in Q4. I wish they would have put a stake in the ground and confirmed an annual number - saying that the run rate is $45M-$50M in Q2 without any further growth may give the impression they are not counting on significant growth going forward?
I was going off Yahoo's key stats table - they report Debt of $8+B and TTM EBITDA of less than $1B? I didn't see any EBITDA reported in the earnings release, but then the narrative speaks to a 4X ratio? Did they have a big acquisition in the past 12 months that would distort the TTM EBITDA number?
By comparison, Valeant's Debt/EBITDA ratio is only about 6-times - debt of $30B vs EBITDA of $5B. A ratio of 6X is considered high - 9X is negligent!
Their Debt/EBITDA ratio is 9+ times - that may be sustainable when everything is rosy, but any kinks in the revenue or profitability outlook will make that ratio look dangerous - the shares are basically an option at this stage.
A lot of redemptions going on in the hedge fund industry recently, most likely in funds that were long biotech - those that have been short since the beginning of the year have some happy investors. The political environment created by Valeant, Shrekl, etc. certainly hasn't helped - even if your company isn't part of the the acquire and gouge business model, it will still get caught up in the downdraft.
Based on early experience by the hospitals, it is becoming clear that they are trusting the T2 to make decisions about treatment - the one hospital tests the patients twice - once to determine if anti-fungal treatment is needed and second to see if the infection has been cleared. Initially, the company was very hesitant in their speculation on whether T2 would replace blood culture, but it is clear from the experiences they are hearing from the hospitals using T2 that blood culture will ultimately be replaced by T2. The bad thing is that some of the hospitals (15%-20%) are waiting for the bacteria panel to be available before they commit to the system. It is understandable to wait 6-9 months to avoid separate approval and implementation efforts, but how much money and how many lives will be wasted in the interim?