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Edited Transcript of OMER earnings conference call or presentation 8-Aug-17 8:30pm GMT

Thomson Reuters StreetEvents

Q2 2017 Omeros Corp Earnings Call

SEATTLE Aug 13, 2017 (Thomson StreetEvents) -- Edited Transcript of Omeros Corp earnings conference call or presentation Tuesday, August 8, 2017 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gregory A. Demopulos

Omeros Corporation - Co-Founder, Chairman, CEO and President

* Jennifer Williams

* Michael A. Jacobsen

Omeros Corporation - CAO, VP of Finance and Treasurer

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Conference Call Participants

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* Jason Howard Kolbert

Maxim Group LLC, Research Division - Executive MD, Head of Healthcare Research & Senior Biotechnology Analyst

* Serge D. Belanger

Needham & Company, LLC, Research Division - Senior Analyst

* Stephen Gilbertpaul Brozak

WBB Securities, LLC, Research Division - Senior Equity Analyst

* Vasiliana Vireen Moussatos

Wedbush Securities Inc., Research Division - MD of Equity Research

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Presentation

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Operator [1]

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Good afternoon, and welcome to today's 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 a week from today. I will turn over the call to Jennifer Williams, Investor Relations of Omeros. Ma'am, please go ahead.

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Jennifer Williams, [2]

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Good afternoon, and thank you for joining the call today. I'd like to remind you that some of the statements that will be made on the call today will be forward-looking. 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. Please refer to the Risk Factors section of the company's quarterly report on Form 10-Q, which was filed today with the SEC, for a discussion of these risks and uncertainties.

Dr. Greg Demopulos, Chairman and CEO of Omeros, will take you through a corporate update; and then Mike Jacobsen, our Chief Accounting Officer, will provide an overview of our first -- second quarter financial results. We have some time reserved for questions after the financial overview.

Now I would like to turn the call over to Dr. Demopulos.

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Gregory A. Demopulos, Omeros Corporation - Co-Founder, Chairman, CEO and President [3]

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Thank you, Jennifer, and good afternoon, everyone. We appreciate you taking the time to join us on the call today.

We're pleased to report that our net revenues for the second quarter were $17.2 million, all of which resulted from sales of OMIDRIA, our FDA-approved product for cataract surgery. OMIDRIA revenues in the second quarter increased $4.9 million or 40% over the prior quarter. On a year-over-year basis, second quarter revenues increased 71% over the same period in 2016.

In the second quarter, sell-through or unit vials shipped from our wholesalers to our hospital customers and ambulatory surgery centers, or ASCs, grew 34% over Q1 and 113% year-over-year. In addition, inventories at the wholesalers at the end of June were at historically normal levels.

The increase in second quarter revenues and sell-through was the result of substantial acceleration of OMIDRIA adoption across all sectors of our market. In every region of the country, sales grew in ambulatory surgery centers and hospital outpatient departments, including national and regional ASC chains as well as academic centers, with growth driven by both an 11% increase in the number of purchasing accounts and a 20% increase in vials consumed per purchasing facility.

The Market Scope 2017 Annual Cataract Surgery Survey Report, a survey of practicing ophthalmologists conducted in March of this year, found that OMIDRIA was being used in approximately 8% of cataract procedures performed in the U.S. OMIDRIA revenue growth has continued into the third quarter. Based on recent weekly sell-through data, our current annualized revenue run rate is approximately $75 million.

With expanding utilization of OMIDRIA, more and more surgeons, nurses, administrators and patients are experiencing firsthand the clinical benefits that the drug provides. The growing enthusiasm for OMIDRIA within the ophthalmic surgery community is palpable. At recent ophthalmology conferences, including the annual meetings of the American Society of Cataract and Refractive Surgery and of the American-European Congress of Ophthalmic Surgery, surgeons and administrators who even recently were overtly critical of the product became strong advocates after using OMIDRIA, speaking publicly of its importance to their practices and to their patients. Insurance coverage for OMIDRIA is also improving as our reimbursement team continues to work with commercial and Medicare Advantage payers.

We have been focusing recently on rolling out a number of educational programs directed to surgery center administrators. These programs further articulate the benefits to their respective practices and the improved patient outcomes seen with the use of OMIDRIA in real-world clinical studies: decreased surgical complications; reduced use of pupil expansion devices; better visual acuity postoperatively; and faster surgical times, leading to higher procedural throughput.

Findings from these studies, which have been conducted independently by leading cataract surgeons, have been presented at ophthalmic conferences and continue to expand the literature base for OMIDRIA in peer-reviewed clinical journals. The most recent example is a manuscript published in Clinical Ophthalmology and authored by Dr. Frank Bucci, an internationally recognized expert in refractive and cataract surgery. In the article, Dr. Bucci analyzes approximately 2,000 sequential cataract procedures, assessing the need for pupil expansion devices to hold open constricting pupils during surgery with OMIDRIA compared to the need for those devices in cases performed using his standard of care practices prior to the availability of OMIDRIA. Dr. Bucci found that the use of pupil expansion devices, which are expensive and damage the iris, decreased by 63% when OMIDRIA was used.

This result is consistent with findings from independent studies conducted by other thought leaders in ophthalmology.

Other real-world studies have recently been completed that demonstrate profound benefits, including maintenance of intraoperative iris rigidity and IFIS, or intraoperative floppy iris syndrome, patients as well as marked reduction in both surgical times and use of pupil expanding devices with OMIDRIA compared to intracameral epinephrine.

Last year, we announced the successful completion of the postmarketing pediatric clinical trial for OMIDRIA in which the drug was well tolerated with adverse events consistent with those seen in the control group as well as across pediatric cataract surgery in general. Given these data, a supplemental NDA for OMIDRIA was submitted in June of this year, requesting an expanded indication in label language covering patients of any age. We expect that this submission will fulfill FDA's postmarketing requirement and result in an additional 6 months of market exclusivity for OMIDRIA.

Pass-through reimbursement for OMIDRIA is currently scheduled to end as 2018 begins. While there can be no guarantees, we have made good progress and remain optimistic that before year-end, our administrative and legislative efforts will successfully secure ongoing Medicare reimbursement for OMIDRIA, the only FDA-approved product of its kind.

OMIDRIA is proving to be a success and a significant source of funding for the development of our pipeline. That pipeline contains a robust portfolio of programs that combine cutting-edge science with large commercial opportunities. I'll run through several of those programs now, beginning with our complement inhibitors, OMS721 and OMS906.

OMS721, our lead MASP-2 antibody, targets the lectin pathway of the complement system, a key component of the immune response. We have 3 OMS721 clinical programs currently underway: a Phase III program in atypical hemolytic uremic syndrome, or aHUS; another Phase III program that we just initiated in immunoglobulin A or IgA nephropathy; and a Phase II program that we are planning to advance to Phase III later this year in patients with hematopoietic stem cell transplant associated thrombotic microangiopathies, or TMAs.

Enrollment in our Phase III program in patients with ongoing or newly diagnosed aHUS is open, and we are bringing sites online. The study design consists of an open-label clinical trial with only a single arm, in other words, no control arm. We expect that the data from this single study will satisfy U.S. and European regulatory agencies. Our initial target enrollment is approximately 40 patients, which could provide full approval in Europe as well as satisfy requirements for accelerated approval in the U.S. To date, we've received orphan drug designation from the FDA for TMAs broadly, including aHUS, and have also been granted fast track designation for the treatment of patients with aHUS.

Positive data from the dose-ranging stage of the Phase II clinical trial evaluating OMS721 in the treatment of aHUS were presented in April at the International Society of Nephrology's World Congress in Mexico City. We also have publicly disclosed that in aHUS patients treated with 721 in our Phase II trial, we've seen improvement across markers of TMA, including platelet count and levels of lactate dehydrogenase, or LDH, haptoglobin and schistocytes. In addition, 3 patients were able to discontinue dialysis and 3 others on chronic dialysis who were considered ineligible for kidney transplantation because of their active aHUS stabilized on OMS721 and were deemed eligible for transplantation. At least 1 of these 3 patients has already undergone successful kidney transplantation and, at last report, was doing well.

We have now also initiated a second Phase III program for OMS721. This one focused on patients with IgA nephropathy. In June, our Phase II clinical trial data in IgA nephropathy were presented at the annual congress of the European Renal Association and the European Dialysis and Transplant Association in Madrid. Those data demonstrate unprecedented improvement in proteinuria following only 12 weeks of OMS721 treatment, with a 77% reduction in urine albumin to creatinine ratios and a 73% mean reduction in 24-hour urine protein levels. Given the strength of the data, physicians in attendance representing centers in about a dozen countries across Europe, the U.S. and Asia that manage large numbers of IgA nephropathy patients have asked to participate in our Phase III clinical trial. We are currently evaluating those centers and a host of others as part of our ongoing clinical site evaluations for the Phase III clinical trial.

Also, in June, OMS721 received breakthrough therapy designation from FDA for IgA nephropathy. Only drugs that could represent a major advance in the treatment of serious or life-threatening diseases are eligible for breakthrough, a designation that ensures close collaboration with senior management and staff at FDA to expedite the drug's development and potential approval. OMS721 is the only drug candidate in development for the treatment of IgA nephropathy that has been granted breakthrough therapy designation by FDA.

Just last week, we announced that OMS721 also has been granted orphan designation by FDA for the treatment of IgA nephropathy. There are approximately 150,000 to 180,000 IgA patients in the U.S., more in Europe and even more in Asia. The benefits conferred by orphan designation include substantial cost savings and tax credits as well as 7 years of market exclusivity following drug approval. Discussions will be ongoing with FDA as we finalize the protocol for our Phase III clinical trial on IgA nephropathy. FDA has indicated its willingness to consider proteinuria as the primary end point for full approval of OMS721.

To our knowledge, FDA has not previously offered proteinuria as an end point for full approval, instead requiring assessment of change in glomerular filtration rate. The ability to use proteinuria as an end point for full approval would potentially shave years from the clinical trial time line. We expect to begin enrollment for our Phase III trial on IgA nephropathy later this year.

We also will be meeting with the European Medicines Agency, or EMA, to discuss the Phase III clinical trial for IgA nephropathy. It is our intention to satisfy the regulatory approval requirements for both FDA and EMA with a single Phase III trial. Also in Europe, we are pursuing orphan designation and priority medicines or prime designation, which is similar to breakthrough designation in the U.S.

While the Phase III program for IgA nephropathy is now underway and advancing toward initiation of the Phase III trial, we continue to enroll IgA nephropathy patients in our ongoing Phase II trial, which could result in the release of additional data.

You might also recall that we generated positive data in lupus nephritis patients in our Phase II trial assessing OMS721 across a range of renal diseases. 12 weeks of treatment with OMS721 resulted in 4 of 5 lupus patients markedly responding with a 69% mean reduction in proteinuria. One study patient did not respond, but that patient's course was complicated by a systemic flare of the disease. Like IgA nephropathy, there is no approved treatment for lupus nephritis. Lupus nephritis represents an additional exciting commercial opportunity, and we are exploring our options to access that market.

Our Phase II program evaluating OMS721 in patients with stem cell transplant-associated TMA is also progressing well. To date, we've reported on 9 patients. 7 of them responded to treatment with OMS721. The 2 patients who didn't respond received only 2 to 3 weeks of therapy with OMS721, were placed on palliative care and soon thereafter died due to progression of their underlying cancers. Enrollment in the Phase II trial is continued, and additional data are being collected. As with IgA nephropathy and lupus nephritis, again, there is no approved treatment for stem cell transplant-associated TMA.

Having already been granted breakthrough designation for OMS721 in IgA nephropathy, we are pursuing, based on the strength of our data, a second breakthrough designation for our drug in stem cell transplant-associated TMA. We plan to initiate a Phase III program by the end of the year and to pursue accelerated approval for OMS721 in this indication.

So we clearly are pleased with the efficacy data from clinical trials with OMS721. As noted in our recent press release, over 150 subjects have been administered OMS721, and we have not seen any safety concerns. The other major risk to drugs in development is chemistry, manufacturing and controls, or CMC. We remain pleased with our CMC efforts for OMS721 in its intravenous and subcutaneous forms, both of which are in Phase III clinical programs. While our Phase III programs in aHUS and IgA nephropathy advance and we prepare for our Phase III program in stem cell transplant-associated TMA, our compassionate use program continues to field request for OMS721. Where possible, we are enrolling these patients in our clinical trials.

Turning now to the other half of our MASP program. OMS906 targeting MASP-3 also continues to make good progress. Omeros was the first to identify MASP-3 as the key activator of the complement system's alternative pathway. In preparation for clinical trials, we will be scaling up our lead antibody and are evaluating potential lead clinical indications. As we have discussed, this could include any of the diseases linked to the alternative pathway.

One disease under consideration as our first indication for OMS906 is paroxysmal nocturnal hemoglobinuria, or PNH. In contrast to C5 inhibitors that only block intravascular hemolysis in PNH, OMS906 blocks both intra- and extravascular hemolysis. This is really an important distinction and in part why OMS906 could be significantly more beneficial than a C5 inhibitor in patients with PNH.

Through our OMS721 and OMS906 programs, we believe that Omeros controls a dominant position in the complement space. The complement system consists of 3 pathways: the lectin, the alternative and the classical pathways. With our broad patent estates around MASP-2 and MASP-3, we exclusively control across a broad range of indications the key activators of 2 of these 3 pathways, namely the lectin and alternative pathways. In addition to our antibodies, we are developing highly potent and selective small molecules against MASP-2 and MASP-3. We also have expanded our efforts to include identification of compounds that inhibit C1, the key activator of the classical pathway.

Now let's briefly discuss our programs in the field of addiction and compulsive disorders, where we believe Omeros again will play a major role. OMS527, our lead phosphodiesterase 7, or PDE7, inhibitor is making good progress toward the clinic. Omeros exclusively controls the use of any PDE7 inhibitor for the treatment of any addiction or compulsive disorder. PDE7 inhibitors work through the dopamine system, which is known to be central to addiction. Our OMS527 program has generated consistently positive results in animal models of cocaine, alcohol, nicotine and opioid addiction as well as in binge eating. In addition to decreasing craving, OMS527 inhibits both cue- and stress-induced relapse but does not depress the reward system, a problem that seriously hinders the use of currently approved anti-addiction agents. We expect to submit an IND or CTA in early 2018.

In addition to our PDE7 inhibitor, our OMS405 program focused on PPAR-gamma agonists has also generated clinically meaningful positive results. Phase II clinical trials have been conducted by our collaborators to evaluate a PPAR-gamma agonist alone or in combination with other agents and have yielded positive data in the treatment of addiction to cocaine, heroin and nicotine.

Work also continues in our phosphodiesterase 10, or PDE10, inhibitor program, OMS824. Plans for continuation of this program in the clinic will be based on internal ongoing work as well as discussions with FDA. And we're evaluating a range of indications for this program.

The last topic in our pipeline discussion is our GPCR program. Omeros believes that it exclusively controls 54 GPCRs with broad-ranging indications, including cancer, metabolism, cardiovascular disease and central nervous system disorders. Compound optimization is ongoing, and additional exciting data have been generated across a number of targets and disease states, including triple-negative breast cancer, immuno-oncology and others. The importance of our ability to identify and optimize functionally active compounds for orphan GPCRs and to link them experimentally to meaningful biology appears to be increasingly recognized by the pharmaceutical industry.

With that, I'll end the update on Omeros' products and programs and turn the call over to Mike for a summary of our second quarter financial results.

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Michael A. Jacobsen, Omeros Corporation - CAO, VP of Finance and Treasurer [4]

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Thanks, Greg. As Greg noted, revenues for the second quarter were $17.2 million, all from OMIDRIA product sales; and our net loss was $14.4 million or $0.33 per share, which includes noncash expenses of $4.3 million or $0.10 per share.

Here are some specifics regarding the second quarter versus the first quarter of the year. Our reported revenue for the quarter increased by 40% or $4.9 million from the first quarter, while unit sales of OMIDRIA by our wholesalers to the ASCs and hospitals, or sell-through, increased by 34%. The difference between reported revenue growth and sell-through unit growth was primarily attributable to increased wholesaler buying during the second quarter.

As you may recall from our first quarter earnings call, the March 31 wholesale inventories were below historical norms. In the first week of April, approximately $750,000 of incremental wholesale orders were received, which replenished the March 31 wholesaler inventory shortfall. At the end of the second quarter, wholesaler inventories had returned to historical norms.

As expected, our overall gross to net deductions were 25.4% during the quarter. This is a 4 percentage point reduction in the overall amount that we received per unit of OMIDRIA sold from the prior quarter. This is due primarily to the continued expansion of our volume discount program for ASCs that reach OMIDRIA utilization levels, qualifying them for rebates, and to increases in our OMIDRIA share We Pay the Difference program as ASC sales continue to expand. We expect the overall revenue that we receive for OMIDRIA vials sold in Q3 will be similar to that in Q2 as the rebate program was [fully] implemented for the majority of Q2.

Costs and expenses for the second quarter were $29.1 million, a $4.1 million increase from the first quarter. Specific variations from the first quarter included the incremental cost associated with the Par lawsuit as we continued to prepare for the bench trial that was held in early July; increased regulatory costs associated with the onetime standard user fee for the filing of the supplemental NDA paid to the FDA; increased OMS721 manufacturing costs as we continued to scale our commercial manufacturing capabilities; and increased employee cost. Interest expense was $2.7 million for the current quarter and in line with our expectations.

As of June 30, 2017, we had $29.7 million of cash, cash equivalents and short-term investments available for general operations, a decrease of $4 million from the end of the first quarter. In addition, we had $5.8 million of cash and investments available as required under our loan agreement, building leases and other operating leases.

As you may recall, under our secured debt facility with CRG, we borrowed $80 million in the fourth quarter of 2016 and have 2 additional tranches we can borrow, one for $25 million and the second for $20 million. The $25 million tranche is currently available to us at our discretion through mid-September. The $20 million tranche is available to us assuming we achieve certain OMIDRIA net product sales or average market capitalization thresholds before the end of this year.

Now let's take a look at the remainder of 2017. We anticipate that during the remainder of 2017, the majority of our research and development expenses will be related to our Phase III and Phase II clinical programs for OMS721 and the preparation for commercial manufacturing of OMS721. We expect these costs to increase as the year progresses. Selling, general and administrative expenses for the remainder of 2017 are expected to be reduced from the first quarter primarily due to reduced legal costs associated with the Par lawsuit.

With that, I'd like to turn the call back to over to Greg.

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Gregory A. Demopulos, Omeros Corporation - Co-Founder, Chairman, CEO and President [5]

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Thanks, Mike. Let's open the call to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) First question comes from the line of Liana Moussatos with Wedbush.

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Vasiliana Vireen Moussatos, Wedbush Securities Inc., Research Division - MD of Equity Research [2]

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You mentioned that there's a chance that OMIDRIA reimbursement could extend for Medicare in 2018. Can you compare how it would be reimbursed versus the current pass-through?

My second question is, how long do you anticipate it would take to enroll the Phase III for IgAN? And what's the regulatory path after that? How long will it take to have a single trial? You mentioned that there were multiple new sites that could be opened.

And then my third question, you mentioned OMS721 for lupus nephritis. Are there particular subsets of lupus patients that you think 721 would work the best in?

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Gregory A. Demopulos, Omeros Corporation - Co-Founder, Chairman, CEO and President [3]

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Liana, thanks for those questions. The first one was directed to long-term or permanent reimbursement of OMIDRIA, and I think you asked specifically if I could run through how that would be paid. There are really several options, and I'm going to address this at a high level just simply because we're in the midst of this now and I think probably best not to go into too much detail. But let me answer your question, which I think will satisfy.

First, there's the potential here that the product is reimbursed at ASP plus 6%. As you know, before 2014, that's how these products used during surgical procedures were reimbursed. It was only in 2014 that there was a change where products used during surgical procedures were characterized as supplies and then, in that way, packaged. Now as an orthopedic surgeon, I can tell you that I don't think of a therapeutic drug with a therapeutic indication as a supply. It's discretionary. It's not a supply. A supply is a gown, a drape, a glove, a sponge, a lap. Those are supplies, things you have to use all the time with the surgical procedure; discretionary drugs with therapeutics indications, not so.

So one option is that it is just reimbursed at ASP plus 6%, as all drugs were and as most drugs currently are. The second option is that there are really 2 separate APCs, or ambulatory payment classifications, that are structured: one APC that is reimbursed at a higher rate than the other, that one at higher rate reimbursement is one that contains drug or has used drug; and the other APC for the procedure when the drug is not used.

And again, none of these fixes, I want to be very clear, are specific only to OMIDRIA. These are much broader. So this problem does not just affect OMIDRIA. It affects other drugs. We're talking about it today in the context of OMIDRIA, but I know that you recognize that. The third option here is really that there is potentially an extension of pass-through from its current 3 years to some other period of time, a longer period of time, that allows in that interim the correction of some of these problems. So I think that -- I think that answers your first question.

Your second question, I believe, was around IgA nephropathy, what we think that Phase III trial could look like and specifically timing of that Phase III trial. We haven't given guidance with respect to time line for that trial. I will tell you that we think that, that trial can enroll reasonably quickly. We think that the number of patients -- again, all of this is going to be determined in collaboration with FDA. We're going to be working closely with FDA as we finalize the Phase III trial protocol. But certainly, in the U.S. alone, there are 150,000 to 180,000 patients. Even if you look at those patients who have a protein -- urine protein level in excess of a gram, which is a relatively high threshold, you're talking about roughly 65% of those patients, or about 100,000 in the U.S. And then you look at Europe, which has a larger population of IgA nephropathy patients. You look at Asia, which, again, is even higher than that in Europe. If you drop that proteinuria level down to 600 mg, you're really talking now about 85% of the population or, in the case of the U.S., about 130,000 to 150,000 patients.

So clearly enrollment, we think, will be pretty readily achieved. Number of patients, well, I think that, again, we need to speak with FDA and confirm what we're going to do. But I would expect that this is not going to be driven by efficacy. I think it's really going to be a question of how many patients does FDA want to see. And remember that we should, based on discussions, be able to cross-reference safety data from clinical trials that we're running with 721 and other indications. In any event, I would expect that IgA nephropathy most likely -- in fact, I would clearly bet will leapfrog aHUS in terms of rapidity across the finish line.

Your third question, I think, was around lupus nephritis and what our thoughts are there and are we looking at subtypes? We are going through the data with our key opinion leaders to assess specifically how we want to or if we want to address lupus nephritis at this time. Clearly, IgA nephropathy is our focus. We would expect that the problems of proteinuria are not limited to IgA nephropathy. They really cut across nephropathies in general and glomerulopathies in general. So we're looking at how we want to construct the IgA study and do, in fact, we want to pursue lupus nephritis separately. We very well may, but I think we need to do a little more work as we drill down on just how we would do that.

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Operator [4]

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And our next question comes from the line of Steve Brozak with WBB.

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Stephen Gilbertpaul Brozak, WBB Securities, LLC, Research Division - Senior Equity Analyst [5]

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Congrats, obviously, on the OMIDRIA sales. It's really something that obviously people have been waiting for, and I'm delighted to see it's taking place right now.

Can we go back to the topic on your latest IgA nephropathy developments? You had intimated on some of the particular parts of the 721 program and how it fits into your regulatory strategy. But can you itemize in as much detail as possible as to how it fits and as a whole? And I know you can't talk -- you said you can't really talk about time lines, but can you talk about how you would envision the program going forward, and obviously not just for U.S. but globally? And basically, I'll jump back in the queue.

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Gregory A. Demopulos, Omeros Corporation - Co-Founder, Chairman, CEO and President [6]

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Yes, I think, if I'm understanding, Steve, you're asking me sort of can I sketch out for you how the multiple trials would fit together and...

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Stephen Gilbertpaul Brozak, WBB Securities, LLC, Research Division - Senior Equity Analyst [7]

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Yes, that's it, yes.

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Gregory A. Demopulos, Omeros Corporation - Co-Founder, Chairman, CEO and President [8]

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With respect to sort of design? Is that correct? I just want to make sure I'm answering your question.

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Stephen Gilbertpaul Brozak, WBB Securities, LLC, Research Division - Senior Equity Analyst [9]

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Yes, both design and how they would support each other or how you could basically go out there and leverage each other and what you see the advantages would be there.

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Gregory A. Demopulos, Omeros Corporation - Co-Founder, Chairman, CEO and President [10]

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Well, I think the most straightforward answer with respect to leverage is using each program to support the safety population required for any other program. So I think that that's a clear lever that will benefit all 3 programs -- or all 3 current programs. We've spoken publicly about what the Phase III aHUS clinical trial looks like. It's single-armed, uncontrolled. It is enrolling both Soliris-naive patients as well as those patients who have previously been treated with a C5 inhibitor. It is an international study. We are able, again, to cross-reference the safety data from the other studies that we are conducting. For EMA, based on scientific advice received from EMA, 40 patients is what we expect would be required for full approval. That same number, based on our discussions with FDA, we expect would be required for accelerated approval in the U.S., 80 patients for full approval as it currently stands in the U.S. We do, as we have said publicly, intend to pursue accelerated approval. So our initial tranche of patients that we are focused on running through the trial is 40.

When you turn to the IgA nephropathy program, we have been discussing whether that would be better as a single arm or a controlled trial. As we currently stand, and I don't want to be held to this, we can always change our mind, and again, all of these discussions need to be finalized with FDA, but we're currently considering a controlled study, so treatment arm/control arm. We, frankly, think that could be a more efficient approach. And one of the reasons for that is a potential design would be 12 weeks of treatment in the treatment arm, 12 weeks of treatment in the control arm, again, double-blinded, but any patients that do not respond in either arm subsequently receive 12 weeks of 721 treatment. So not a full crossover design but allowing your control patients effectively to act as internal control. And we think that would be a powerful design. We obviously would set a threshold of proteinuria at which the patients would be retreated.

The important point, I think, in the IgA trial is that the FDA has stated that it will consider proteinuria as an end point not for accelerated approval but for full approval. That's an important distinction. And I think, as I said in the prepared remarks, we believe that's unprecedented that FDA has been willing to do that. And what that really does is remove GFR, or glomerular filtration rate, estimated glomerular filtration rate, or eGFR, from an end point. We still would assess it, but it becomes almost more of a safety end point to make sure that eGFRs aren't markedly decreasing. And it, as we've said, can shave years off of the trial for us.

With respect to stem cell, we are just beginning to formulate what we think about a Phase III trial on stem cell. Clearly, again, there are 20,000 stem cell patients in the U.S., over 40,000 in Europe. We think that this would be a relatively small trial. We would, again, need to discuss closely with FDA the end points they'd like to see. We have some pretty good ideas. And we think, again, that the number of patients in that trial should not be burdensome.

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Stephen Gilbertpaul Brozak, WBB Securities, LLC, Research Division - Senior Equity Analyst [11]

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Great. Well, I...

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Gregory A. Demopulos, Omeros Corporation - Co-Founder, Chairman, CEO and President [12]

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So in retrospect -- yes, just -- I'm sorry, Steve. I interrupted you. I just wanted to make -- so I -- we really think that, frankly, IgA and/or stem cell could leapfrog the aHUS program just in terms of time line. But we're pushing all 3 forward. Frankly, we're somewhat agnostic with respect to which crosses the finish line first. Our objective is to get the drug in the market as quickly as possible for any of these indications, and we'll take it from there. I think that once the product is on the market, it will be amazing the other programs that we're going to be able to run.

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Stephen Gilbertpaul Brozak, WBB Securities, LLC, Research Division - Senior Equity Analyst [13]

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It actually, then, brings up a second question about do you -- or have you guys studied any other program where you'd have this many opportunities for potential approval? Or is there any examplar of something like this from before? Or are you guys unique to this? And I'll -- again, I'll hop back in the queue.

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Gregory A. Demopulos, Omeros Corporation - Co-Founder, Chairman, CEO and President [14]

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Yes, that's a good question, one that I'm not equipped to accurately answer. I don't know of all the drugs that have been approved across multiple indications. I can point to one other that has the potential for the same kind of broad approval across multiple indications, and that would be the drug that we're going to be bringing into the clinic in 2018, which is OMS527. I mean, there you're looking at really potentially, if you believe or buy into the animal data, which we do, because the mechanism is highly conserved between rodent and human with respect to PDE7, you could be holding a treatment for pan-addiction, meaning we have generated really stellar data across nicotine, cocaine, alcohol, opioids and binge eating. So we're not just talking about substance abuse addiction but compulsive disorders as well. So I think that certainly I would point -- as self-serving as this sounds, I'd point to our own product and say, "Gee, those indications could be broad."

And then I'd also point to 906 and make the same argument, OMS906, where, again, we control the key activator of the alternative pathway. So think about all the alternative pathway disorders, think about the multiple indications, I can tell you we are, and I think you have the same scenario.

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Stephen Gilbertpaul Brozak, WBB Securities, LLC, Research Division - Senior Equity Analyst [15]

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Well, again, congrats, obviously, on the OMIDRIA sales and look forward to, obviously, the details that come in this next quarter.

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Gregory A. Demopulos, Omeros Corporation - Co-Founder, Chairman, CEO and President [16]

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Thanks, Steve.

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Operator [17]

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And our next question comes from the line of Jason Kolbert with Maxim Group.

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Jason Howard Kolbert, Maxim Group LLC, Research Division - Executive MD, Head of Healthcare Research & Senior Biotechnology Analyst [18]

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What I'd like to -- so one of the things that we haven't been talking a little bit about is the international markets for OMIDRIA, and I wondered if you could just touch on that and what the plans are there.

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Gregory A. Demopulos, Omeros Corporation - Co-Founder, Chairman, CEO and President [19]

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Thank you, Jason. Yes, obviously we're looking at those. And we don't talk about our partnering efforts, but one would have to assume that we are evaluating those options and we do expect that OMIDRIA will enter the European market. As you know, we held back for a while so that we could establish the U.S. market, establish the data supporting the product, the data beyond just the Phase III program but really the real-world data that we have mentioned time and again, which point to how the drug is being used by physicians in surgical centers today and the benefits that we're seeing. We think that, that helps drive value for Europe. And I think that we have demonstrated those benefits and their related value pretty well to date. We'll continue to do that, but our objective, certainly, is to have OMIDRIA in international markets. You know it's already in the Middle East but our objective also in Asia and in Europe.

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Jason Howard Kolbert, Maxim Group LLC, Research Division - Executive MD, Head of Healthcare Research & Senior Biotechnology Analyst [20]

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And switching gears to the pipeline and talking a little bit about OMS721, you're building a lot of case study evidence around 721. So can you help me understand kind of how that's going to continue, especially as you look forward to a pivotal program and additional discussions with regulators about the approval process?

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Gregory A. Demopulos, Omeros Corporation - Co-Founder, Chairman, CEO and President [21]

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Yes, I hear you. I challenge the characterization just a bit as case studies. We've run a Phase II program. Well, let me back up. We've run a Phase I program, in fact multiple trials of Phase I, with 721. We've run a Phase II program in aHUS. We are in a Phase III program, clinical trial for aHUS. On IgA, the patient numbers were small in that initial study. It was a 4x4 design: 4 patients in IgA, 4 in membranous, 4 in lupus, 4 in C3 glomerulopathy. But the data are what the data are. And not only did we see a precipitous and rapid drop in proteinuria in the IgA patients and, frankly, in 80% of the lupus patients and 50% of the membranous patients, but what we saw was also a legacy effect. So once the drug was stopped, these patients continued to improve. So that we're really thinking with IgA that we're going to -- or these nephropathies in general, that we're really thinking about treating episodically. So treat for 12 weeks and then treat probably the next year for 12 weeks.

The data, again, 4x4, not an enormous number of patients, but the data speak for themselves and I think they speak loudly enough, certainly spoke loudly enough for the FDA to provide us -- to grant us breakthrough designation, and again, 721 being, as far as we know, the only product, the only drug that has received breakthrough designation for IgA nephropathy.

So that has propelled us into a Phase III program. We expect to push hard on that program, as I said. So these are a little more than case studies. These are really programs in orphan diseases and...

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Jason Howard Kolbert, Maxim Group LLC, Research Division - Executive MD, Head of Healthcare Research & Senior Biotechnology Analyst [22]

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I mean, all I was really trying to say was that the data we've seen from individual patients has actually been very compelling, and that gives me confidence that a relatively moderate Phase III trial gets you where you need to be in terms of the approval cycle.

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Gregory A. Demopulos, Omeros Corporation - Co-Founder, Chairman, CEO and President [23]

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Well, I would agree with you there. I would agree -- I agree 100% with that characterization. Look, I think as we -- I think clearly we believe in the efficacy of the product. I think the data speak to that. We feel pretty good about the safety of the product. As we've said, we've administered to over 150 subjects and haven't seen any real safety concern. And then you look at the CMC piece, which is the other way that these programs can derail. And we've got that, we believe, well under control, our internal group working with outside contract manufacturers. We have that well in hand, both the IV and the subcutaneous formulation. So lightning can always strike, but boy, I would be surprised if it struck 3 times, meaning across all 3 of the programs, or hit the drug in such a way that we couldn't advance any of them.

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Operator [24]

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And our next question comes from the line of Serge Belanger with Needham & Company.

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Serge D. Belanger, Needham & Company, LLC, Research Division - Senior Analyst [25]

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Just a couple questions for me. I was bouncing on a couple -- between a couple calls so I may have missed this. But on OMIDRIA, clearly you put up a very nice number this quarter. How much of that was due to inventory changes between the first and second quarter? And then I guess can you talk about some of the -- what you're seeing in the early third quarter trends that could give us confidence that we'll continue seeing strong growth in the second half of the year?

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Gregory A. Demopulos, Omeros Corporation - Co-Founder, Chairman, CEO and President [26]

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Yes, good. Thanks, Serge. I'll answer quickly because it sounds like you're in between calls. Here. The amount that -- and what you're referencing is somewhat of the lumpy distribution that we had at the end of Q1 where, just for everyone's benefit, where about $2.1 million in net sales came in, in the first week of April. Roughly about -- when we look closely at that, roughly about 750 of that, $750,000 we could probably attribute to the last week in Q1. The rest of that, meaning $1.4 million, $1.5 million of that were bona fide sales in Q2.

How things are progressing in Q3? I did mention on the call, and you were probably off at the time, but we've seen continued growth. In fact, over the recent weeks, we're running at about a $75 million annualized run rate. And we're excited about the growth that we're seeing in OMIDRIA, the uptake, the adoption and, frankly, the acceptance. As I said in the prepared comments, it's really been a pretty dramatic change when you attend ASCRS this year relative to last year, or the AECOS meeting this year relative to last year, and you see the difference in just the way the drug is accepted or perceived by the surgeons and administrators. It's a completely different feel. And even the ones who were opposed a year ago or even more recently than that, once they've used the product then are saying that they need the product, they've got to use the product. And guys who were opposed are now coming and saying, "Look, the only ones who speak negatively of the drug are docs who haven't used it."

So it's a very different, just a completely different feel and reception that the drug, I think, is receiving. So we're really quite excited about it.

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Serge D. Belanger, Needham & Company, LLC, Research Division - Senior Analyst [27]

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Okay. And then just a couple questions on OMS721. Clearly, the focus has shifted to the Phase III programs that are ongoing or -- either ongoing or initiating. I just wanted to know where you are with a couple of the Phase IIs. I think they're still ongoing. Will they be completed? Or is everything now kind of rolling over to Phase III? And when, I guess, could we see additional data from these Phase IIs?

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Gregory A. Demopulos, Omeros Corporation - Co-Founder, Chairman, CEO and President [28]

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Yes. Well, the -- let's talk about each one in order. The TMA study continues. We continue to enroll stem cell patients, and we will do that. There may be additional data. In fact, I would expect that we'll see additional data coming out of that trial as we move that into a Phase III program.

The IgA trial, the 4x4 is completed. That has been wrapped up, data analyzed, and we've shared all those data, I think in pretty excruciating detail. We still may have some additional data to release around that program. So I'd look for that.

But we do have another Phase II IgA trial that is running, and this is a double-blind, controlled trial. The origin of that study was when we initially went into FDA requesting breakthrough designation, this was sometime in the latter part of last year, we went in with preliminary data on only 2 patients. The discussion with the FDA at the time was, "Very exciting data but we need to see more. Can you show us a few more patients?" And then the suggestion came, "How about setting it up as a double-blind, placebo control run, 5 in 1 arm, 5 in the treatment arm and then bring those data back?"

We did initiate that trial, and we have been enrolling that trial. In the interim, we completed the 4x4 study. And those data were so compelling we decided, "Gee, we really don't need to wait for the controlled 5 and 5 study. Let's bring the IgA data from the 4x4 study to FDA," which we did. That resulted in the breakthrough designation.

We've decided to keep that IgA Phase II running. Could be data from that, or that may just run until the first part of 2018. We're not waiting for that trial by any means to start the Phase III.

So I hope that answers your question. Phase III is going to run as quickly as we can get it going.

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Operator [29]

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And I'm showing no further questions at this time. I would like to turn the conference back over Dr. Demopulos for any further remarks.

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Gregory A. Demopulos, Omeros Corporation - Co-Founder, Chairman, CEO and President [30]

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Well, that wraps up the call. Thank you again, everyone, for joining us today. We expect to provide, as I think we've talked about, additional information on a number of our programs as we start to close out the year. As always, we appreciate your continued interest, your continued support. Have a good day, everyone. Thank you.

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Operator [31]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.