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Edited Transcript of OMER earnings conference call or presentation 9-May-19 8:30pm GMT

Q1 2019 Omeros Corp Earnings Call

SEATTLE Jun 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Omeros Corp earnings conference call or presentation Thursday, May 9, 2019 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 & President

* Michael A. Jacobsen

Omeros Corporation - CAO, VP of Finance & Treasurer

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Conference Call Participants

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* Brandon Richard Folkes

Cantor Fitzgerald & Co., Research Division - Analyst

* Raghuram Selvaraju

H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst

* Stephen Gilbertpaul Brozak

WBB Securities, LLC, Research Division - Senior Equity Analyst

* Jennifer Williams

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Presentation

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Operator [1]

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Good morning, and welcome to the today's conference call for Omeros Corporation. (Operator Instructions) Please be advised that this call is being recorded at the company's request, and a replay will be available on the company's website for 1 week from today. I would now like to turn the call over to Jennifer Williams, Investor Relations from Omeros.

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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 special note regarding forward-looking statements in the company's quarterly report on Form 10-Q, which was filed today with the SEC and the risk factor section of the company's 2018 annual report on Form 10-K for a discussion of these risks and uncertainties.

Dr. Greg Demopulos, Chairman of CEO of Omeros, will take you through a corporate update, and then Mike Jacobson, our Chief Financial Officer, will provide an overview of our first 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 & 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.

We have a lot to cover today. We'll begin with OMIDRIA, our FDA-approved ophthalmic product. Total revenues from OMIDRIA net sales reported in the first quarter were $21.8 million, an increase of $20.2 million over the first quarter of last year. Our net loss for the first quarter of 2019 was $24.3 million or $0.50 per share, which includes noncash charges of $6 million or $0.12 per share.

The overall decrease in cash, cash equivalents and short-term investments for the quarter was $13.3 million. As of March 31, we had $47.2 million available for general operations. We're also finalizing an accounts receivable baseline of credit for up to $50 million should we choose to implement it.

Compared to the fourth quarter of 2018, OMIDRIA net sales for the first quarter were essentially flat. The first quarter is historically the weakest of the year for OMIDRIA sales due to the large number of ophthalmology conferences held during the period and the resetting of insurance deductibles at January 1.

Despite this headwind, sell-through, or vial shipped from our wholesalers to customers, set a new record, 14% higher than the previous high watermark in the fourth quarter of 2018. This wasn't reflected in the first quarter's net sales because the quarter ended on a weekend and normal wholesaler restocking shifted to the first 2 days of April.

Net sales of OMIDRIA from wholesaler purchases on those 2 days were approximately $2.4 million. The record sell-through in Q1 was driven by increasing demand, which has continued to grow throughout the current quarter.

Utilization continues to increase across ASCs, hospital outpatient departments and the VA system. We're also seeing increased buying from ASC chains and are advancing discussions with equity holders of networks of ophthalmic surgery centers to enable broad access to OMIDRIA across their respective facilities. As a result, we are seeing double-digit growth in sell-through this quarter compared to the same period last quarter.

Let's take a closer look at some of the key factors behind the increasing demand for OMIDRIA and why we expect this to continue. First, surgeons and facility administrators understand that OMIDRIA significantly improves patient outcomes. Use of the drug decreases complications, reduces the use of pupil expansion devices, prevents intraoperative floppy iris syndrome, or IFIS, and makes cataract surgery faster and safer. It also reduces both postoperative pain and use of pain medications, including opioids. And has been shown in 2 separate investigator-initiated studies to preclude the need for postoperative steroids.

The body of real-world clinical data demonstrating the efficacy and safety benefits of OMIDRIA is substantial and continues to expand.

Just this week, an important study was presented at the combined Annual Meeting of the American Society of Cataract and Refractive Surgery and American Society of Ophthalmic Administrators. The study evaluated the incidence of cystoid macular edema, or CME, a sight-threatening complication of cataract surgery. Two groups of patients were assessed, one undergoing cataract surgery using OMIDRIA with postoperative NSAIDs alone and the other using postoperative corticosteroids with and without NSAIDs. The latter group had no OMIDRIA.

This retrospective analysis of cataract surgery performed with OMIDRIA on over 500 eyes showed that use of the drug reduced the incidence of CME by 3- to 12-fold compared to published data when cataract surgery is performed without OMIDRIA and instead using postoperative steroids with and without NSAIDs. A manuscript is in preparation and will soon be submitted for publication in a peer-reviewed journal.

A second study, this one conducted in more than 2,200 eyes, similarly demonstrates that use of OMIDRIA precludes the need for steroids in cataract surgery. In this study, use of OMIDRIA with a topical NSAID and again no steroids, markedly lowered not only the incidence of CME but also that of other significant problems in cataract surgery, including rebound iritis as well as pain and photophobia. Here again, a manuscript is being prepared for publication, and the study abstract has been submitted for presentation at the upcoming Annual Meeting of the American Academy of Ophthalmology.

A third recent study, again initiator -- initiated by the investigator, shows that use of OMIDRIA significantly eliminated the need for opioids in cataract surgery, while at the same time significantly decreasing postoperative pain.

These recent studies, together with the 17 peer-reviewed articles already published on the benefits of OMIDRIA, support our efforts with CMS and with Congress to secure permanent separate payment for our drug.

In the most recent Outpatient Prospective Payment System Rule, CMS laid out 2 potential paths to permanent separate payment, the first directed to drug use during surgery that have a postoperative benefit and the second to non-opioid drugs used during surgery that have an indication for postoperative pain reduction. OMIDRIA would qualify under each of these 2 avenues and the 3 recent studies just described further strengthen that qualification.

Just as the body of evidence supporting the use of OMIDRIA in cataract and other intraocular lens replacement procedures has grown, so too has the number of cataract surgeons and facility administrators who have direct experience using OMIDRIA who recognize its clinical benefits and who are committed to ensuring that Medicare beneficiaries, their patients, can continue to access the drug.

With the overwhelming clinical data and the support of ophthalmic surgeons and administrators nationwide who have experience using the drug, we're optimistic that OMIDRIA will be appropriately reimbursed by CMS after the slated expiration of the drug's pass-through status on October 1, 2020. We're also making billing and reimbursement for OMIDRIA easier and more certain to ensure that patients covered across the spectrum of government and commercial payers are able to access the drug.

Over the last 3 months, we've had key wins with major payers on both the commercial and Med Advantage fronts, including multiple Blue Cross, Blue Shield carriers and CareFirst. Further improving the reimbursement picture for OMIDRIA, CMS recently issued a preliminary decision to establish a unique and permanent J-code for OMIDRIA under the Healthcare Common Procedure Coding System or HCPCS. The decision is expected to be finalized no later than November with the J-code becoming effective on the first day of the quarter following that decision, providing a uniform, simpler and widely accepted process for providers to bill for OMIDRIA not only within Medicare but across Med Advantage and commercial insurance plans as well. Because of the continued increasing demand for OMIDRIA and headway that we're making with payers, sell-through in the second quarter of 2019, like each of the 2 preceding quarters, remains on track to set another new record high.

Turning now to our development programs. We have important updates to share as well regarding our lead MASP-2 inhibitor, narsoplimab, or OMS721. As you know, we're advancing 3 Phase III programs for narsoplimab in hematopoietic stem cell transplant-associated thrombotic microangiopathy or stem cell TMA; immunoglobulin A, or IgA, nephropathy; and atypical hemolytic uremic syndrome, or aHUS.

For stem cell TMA, narsoplimab holds orphan drug designations from FDA and the European medicines agency, or EMA, as well as breakthrough therapy designation from FDA. Narsoplimab is in fact the only drug that has been awarded breakthrough therapy designation for stem cell TMA.

To briefly recap developments discussed on our last call, a meeting with the FDA early in the fourth quarter -- in the first quarter resulted in a streamlined path to submission of a Biologics License Application, or BLA, for narsoplimab in stem cell TMA. At that meeting, it was confirmed that one, a response-based analysis is the most appropriate and expeditious assessment for approval of narsoplimab in stem cell TMA and no additional patients beyond those already enrolled are needed for the BLA submission. We are required only to continue collecting additional exposure and follow-up data on stem cell TMA patients already treated with narsoplimab.

Two, the trial which is in open-label single-arm study, does not include nor require a control group, historical or otherwise. Three, we may submit our BLA as a rolling submission, meaning that FDA can review our BLA in sections as the agency receives them. And four, FDA will consider not only accelerated approval but also full approval for narsoplimab in stem cell TMA with the determination to be made based on the data submitted.

Since that meeting, there have been 2 additional meetings with FDA. The first was to cover CMC or manufacturing-related topics and our CMC commercialization plan remains on track. The second was focused on the criteria for the primary end point by which the clinical data will be assessed. We have reached agreement with the FDA on the large majority of the criteria for the primary end point, which will include both laboratory and organ function components. We have a good understanding and are comfortable with FDA's position on the remaining few points. We expect to reach agreement on these last few details in the very near future.

In view of our interactions with FDA and our data from stem cell TMA patients treated with narsoplimab, we're confident that our efficacy and safety data will support approval.

We're pleased with the collaborative working relationship that has been established with FDA around the stem cell TMA program for narsoplimab, and our progress with FDA has now enabled us to finalize the scope of additional clinical data collection needed to support our BLA. That data collection is currently underway. We are also discussing with FDA the specific timing of the agency's review of the respective BLA sections under the rolling submission.

As stated previously, we plan to harmonize the requirements for the European marketing authorization application, or MAA, with those of the U.S. BLA. The European Medicines Agency has confirmed that we can submit the MAA for narsoplimab under the centralized procedure, which means that approval of a single marketing application allows marketing of the drug throughout the European Union.

Given the change in EMA's around assignments of rapporteurs that was implemented late last year, we anticipate assignment of rapporteurs for our MAA early next month. We also are finalizing with EMA a pediatric investigational plan for narsoplimab, which is a prerequisite to MAA submission. Both EMA and FDA have been supportive of expanding use of narsoplimab to children. Just last week, the 2 agencies held a joint meeting and specifically discussed harmonization of the pediatric development for narsoplimab in stem cell TMA. The feedback received from key opinion leaders on narsoplimab for stem cell TMA and related conditions has been strongly positive.

As stem cell TMA has become better understood and identified, the deadly disorders reported incidents continues to increase, with the reported occurrence approximating 40% in patients undergoing allogeneic stem cell transplants in centers that screen for the disease. Recognition that this potentially lethal complication of stem cell transplant is underdiagnosed worldwide is leading to earlier and broader identification of TMA patients. Earlier diagnosis is expected to drive earlier treatment once available. And we expect narsoplimab to be that treatment.

We continue to expand our physician outreach and were active at the Annual Meeting of the European Society for Blood and Marrow Transplantation, or EBMT, in March of this year. A general session at the conference included an independent case of an 18 -year-old patient with biopsy-proven stem cell TMA of the gastrointestinal tract. This was causing severe bleeding requiring transfusions. The patient received narsoplimab under compassionate use. Her TMA resolved and all transfusions have been discontinued. The patient continues to do well after cessation of her narsoplimab treatment.

Also at EBMT, we launched our disease education initiative with a well-attended session sponsored by Omeros. A focus of the session was the relationship between stem cell TMA and the broader spectrum of disorders caused by endothelial injury. This relationship is important to our development not only of narsoplimab but of our other MASP-2 inhibitors as well. Why? Because endothelial damage activates the lectin pathway and MASP-2 is that pathway's effector enzyme. Therefore, inhibiting MASP-2 blocks the downstream effects of endothelial damage.

In fact, the cause of TMA is thought to be endothelial damage. Yet, endothelial injury syndrome is much broader than TMA alone and is associated with several other severe complications of stem cell transplant, including graft-versus-host disease, veno-occlusive disease and diffuse alveolar hemorrhage. We've already seen narsoplimab successfully treat stem cell transplant patients with TMAs complicated by some of these other disorders.

Based on the clinical data and the pathophysiological evidence, we expect that narsoplimab will prove to be an effective treatment not only for stem cell TMA but even more broadly for endothelial injury syndrome and its multiple components. Our preparations for the anticipated commercial launch of narsoplimab are proceeding ahead of plan. Our team has been engaging with key opinion leaders in the U.S. and Europe, while preparing to demonstrate narsoplimab's value proposition to payers in these markets.

Over the past 6 months, we've had direct interactions with over 50 transplant opinion leaders as well as influential organizations such as the American Society of Transplant and Cellular Therapy and the EBMT. These interactions are helping our commercial team determine how best to position narsoplimab for success and are establishing Omeros as the leader in this space.

We also have been developing our health economics plan and are currently working on a comprehensive value framework and pricing strategy. These are very sick patients. And both from a patient survival and health economics perspective, there's tremendous value in treating TMA early.

Based on clinical experience with the drug, we believe that narsoplimab is saving lives, reducing hospitalizations, decreasing the need for dialysis, preventing organ failure and avoiding other costly TMA-related complications. In addition to our extensive internal research efforts, feedback from former and current representatives of U.S. payers are helping us finalize the value proposition for narsoplimab. We also will be meeting with coverage authorities in the U.S. and Europe to ensure that the value of narsoplimab is well understood and that patients will have ready access to this important therapy on approval.

Let's turn now to our narsoplimab program for treatment of IgA nephropathy, which like our stem cell TMA program, has been awarded breakthrough therapy designation as well as orphan drug designations from FDA and from EMA. Our ongoing IgA nephropathy Phase III clinical trial, referred to as ARTEMIS-IGAN, continues to enroll. We've opened sites all across the U.S. and in over 10 countries throughout Europe and Asia Pacific. The Phase III trial's primary end point is assessment of proteinuria at 36 weeks, at which time we have the opportunity for accelerated or full approval in both the entire patient population, which includes patients with baseline proteinuria greater than 1 gram per day and in the high-risk subpopulation, which includes those patients with baseline proteinuria of at least 2 grams per day.

To the best of our knowledge, narsoplimab remains the only drug in development that can obtain full FDA approval based on proteinuria data alone. We expect that the Phase III ARTEMIS-IGAN trial if positive will also result in European approval for narsoplimab in IgA nephropathy.

Results from the second cohort of IgA nephropathy patients in the narsoplimab Phase II study will be presented at the Annual Congress of the European Renal Association and European Dialysis and Transplant Association in Budapest in June. In addition, together with our academic leadership committee of international IgA experts, a series of manuscripts directed to narsoplimab and its IgA nephropathy program is in preparation with the first planned submission soon.

In the ongoing Phase II IgA study, a third approximately 10 patient cohort will begin enrollment in the coming months at investigator sites in Hong Kong. This portion of the study was redesigned to examine subcutaneous dosing and associated biomarkers in patients with IgA nephropathy. Collecting data on subcutaneous dosing in IgA patients will provide valuable information as we consider life cycle management options for narsoplimab in IgA nephropathy as well as the development of other MASP-2 inhibitors in this disease. This cohort will be open-label and will assess pharmacokinetics and pharmacodynamics of the drug administered subcutaneously over a 12-week period following a single intravenous dose.

Our third Phase III program for narsoplimab also include subcutaneous dosing and is evaluating the drug for the treatment of aHUS. Narsoplimab for aHUS has Fast Track designation from the FDA, and the Phase III single-arm open-label clinical trial in aHUS continues to enroll. In each of the ongoing and completed clinical trials, narsoplimab continues to be well tolerated and no safety concerns have been identified.

Across all of its Phase III indications, narsoplimab is targeting serious or life-threatening unmet medical needs. Neither stem cell TMA nor IgA nephropathy have an approved treatment. In each of these indications, narsoplimab has breakthrough therapy designation, and we look forward to making the drug available as soon as possible to patients who need it.

In addition to our MASP-2 targeting antibody narsoplimab, we continue to advance the development of small molecule MASP-2 inhibitors. We have synthesized and screened a large number of compounds and are optimizing our lead compounds for potency, oral bioavailability and target selectivity. We expect to choose a development candidate this quarter and to enter clinical trials with an orally administered MASP-2 inhibitor next year. An oral agent significantly expands the range of potential indications for our MASP-2 inhibitors. Further, the absence of any marketed small molecule therapeutics in the complement space represents a clear opportunity for our small molecule MASP-2 inhibitors.

Our MASP-3 inhibitor, OMS906 is the second half of our complement target franchise. MASP-3, the key activator of the complement system's alternative pathway, is responsible for the conversion of pro-factor D to factor D. Systemic administration of OMS906 achieves long-lasting inhibition of the alternative pathway. There are at least 2 significant advantages of a MASP-3 inhibitor over other complement inhibitors on the market or in development. First, OMS906 inhibits the alternative pathway without affecting the functioning of the classical or lectin pathways. This is important and means that OMS906 should not be associated with the significant and potentially devastating infection risks seen with C3 or C5 inhibition.

Second, OMS906 is expected to have the ability to treat local inflammatory diseases by systemic as opposed to local administration. This is because active factor D enters compartments within the body, such as the eye through the bloodstream. These compartments are thought to be inaccessible to systemically delivered antibody therapeutics targeting enzymes like C3 or C5. In contrast, systemic administration of OMS906 is expected to shut down the alternative pathway in these compartments.

So for example, rather than having to inject locally into the eye to treat an ophthalmic disease like macular degeneration, OMS906 as a systemic delivery could treat the disease avoiding the need for any eye injections. Clinical trials are slated to begin in the first half of 2020. As we're doing in our MASP-2 program, we're also developing selective small molecule MASP-3 inhibitors to block only the alternative pathway as well as potent bispecific MASP-2/MASP-3 inhibitors to shut down both the lectin and alternative pathways.

Supporting our development programs in complement science, the Omeros Center at Cambridge for complement and inflammation research, or OC3IR, our partnership with Cambridge University, is actively exploring additional indications for our MASP-2 and MASP-3 programs, both internally and through external collaborations.

Now let's move to an update on OMS527, our phosphodiesterase 7 or PDE7 inhibitor program for addiction and compulsive disorders. PDE7 inhibitors appear to avoid a major drawback of all currently marketed anti-addiction drugs. Depression of the reward system, meaning that pleasure derived from other activities such as social interaction, sex or sports is greatly reduced. PDE7 inhibitors do not appear to alter the reward system. Also PDE7 inhibitors are not addictive. Omeros discovered and exclusively controls the link between PDE7 inhibition and any form of addiction or compulsive disorder.

Our Phase I single ascending and multiple ascending dose clinical trial is underway to assess safety and pharmacokinetics of the drug in healthy subjects. We've completed dosing all 6 single ascending dose cohorts and 3 multiple ascending dose cohorts. The drug has been well tolerated and pharmacokinetic data are consistent with once-daily dosing with or without food. Completion of the Phase I trial is expected in this or the following quarter.

Assuming successful completion of Phase I, we plan to conduct a Phase IIa study targeting nicotine addiction. We'll wrap up our program discussion with our G protein coupled receptor or GPCR platform. Omeros believes that it exclusively controls 54 GPCRs with broad-ranging indications. We're particularly excited about GPR174 and its apparent role in immuno-oncology. Based on our data, we believe that GPR174 controls a key cancer pathway and modulation of the receptor could prove an effective treatment for both solid and hematologic tumors. We're continuing to develop small molecule compounds targeting GPR174 and are focused on entering the clinic as soon as possible.

Finally, I'd like to invite everyone to visit our recently updated website at www.omeros.com. It's been a while in coming, but we're proud of the new site and look forward to continuing to raise the visibility of Omeros and our cutting-edge programs. With that, I'll turn the call over to Mike for a summary of our first quarter financial results. Mike?

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

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Thanks, Greg. As Greg noted, revenues for the first quarter were $21.8 million, all from OMIDRIA product sales. Our net loss was $24.3 million or $0.50 per share, which includes noncash expenses of $6 million or $0.12 per share.

Here are some details regarding the current quarter versus the fourth quarter of last year. Total revenues from the sale of OMIDRIA for the first quarter were $21.8 million compared to $22 million in the fourth quarter of 2018. Our sell-through, or OMIDRIA vials shipped by our wholesalers to hospitals and ambulatory surgery centers on the other hand, increased 14% from the fourth quarter. The difference in reported revenue and sell-through is primary attributable to the timing of some wholesaler purchases at the end of March. On April 1 and 2, wholesalers purchased in net sales approximately $2.4 million of OMIDRIA.

During Q4 2018 and Q1 2019, our overall gross-to-net deductions remained relatively consistent, decreasing slightly from 28.4% of gross revenues in the fourth quarter to 27% in the first quarter. Costs and operating expenses for the first quarter were $41 million, effectively flat from the $40.5 million in the fourth quarter of last year. Interest expense for the first quarter was in line with our expectations at $5.6 million and included $2.2 million of noncash interest.

Overall decrease in cash, cash equivalents and short-term investments for the quarter was $13.3 million. As of March 31, 2019, we had $47.2 million of cash, cash equivalents and short-term investments available for general operations. As Greg mentioned earlier, we're also finalizing accounts receivable based line of credit for up to $50 million should we choose to implement it. Any amounts borrowed under the line would bear interest at the prime rate which is currently 5.5%.

With that, now let's take a look ahead to the second quarter and the remainder of 2019. With regard to revenue, the second quarter is historically stronger than the first quarter due to the overall volume of cataract surgeries performed. We would expect our second quarter revenue to reflect this increase in procedures performed and also an overall uptick as our market penetration continues to grow.

During the remainder of 2019, our research and development expenses will primarily be related to our Phase III and Phase II clinical programs for narsoplimab and the scale-up of our manufacturing and preparation for the commercial launch of the drug. We expect our overall research and development cost to increase slightly over the first quarter during the remainder of the year due to the additional clinical costs and increased manufacturing activities.

It should be noted that research and development costs will likely fluctuate on a quarterly basis due to the timing of manufacturing batches being produced at our contract manufacturer in preparation for the stem cell TMA regulatory filings and for our commercial drug supply. Just to be clear, our accounting policy is to expense all manufacturing-related costs until the drug receives approval in either the U.S. or in Europe.

Selling, general and administrative expenses for the remainder of 2019 are expected to increase slightly on a quarter-over-quarter basis from the first quarter primarily due to additional prelaunch activities associated with narsoplimab. Interest expense for the second quarter of 2019 should remain in the $5.6 million to $5.7 million range. Again, of this amount, approximately $2.2 million will be noncash. With that update, I'd like to take a -- go ahead and turn the call back over to Greg. Greg?

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

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Thanks, Mike. Operator, can we 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 Steve Brozak from WBB.

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Stephen Gilbertpaul Brozak, WBB Securities, LLC, Research Division - Senior Equity Analyst [2]

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The first question is actually more of a administrative one. In monitoring the different earnings and revenue services, they seem to be all over the place and candidly it's a bit confusing. One of the questions though, and I know that you don't really want to go into guidance given how the relaunch has just taken place. But can you tell us how you feel in terms of revenue progression and what your thoughts on that line. And then I'd like to go into further detail on narsoplimab and back to OMIDRIA, please?

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

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Sure, Steve. Yes, happy to do that. Look, [we didn't really] (inaudible) the -- we don't -- I'm sorry, I'm not sure where that -- that noise is not coming from our end, so it must be on the operator side.

But we don't really follow the earnings estimates. I mean, they're -- as you're right, they are sort of all over the place and some include some analysts, some include others. With respect to our revenues, look, I said pretty clearly that we expect again double-digit growth in sell-through in the second quarter of this year. We're into that quarter. Growth continues and we expect that growth to continue for the reasons I mentioned. I mean one is the increasing demand, the recognition of the clinical trials and the clinical data that we have amassed.

The second which certainly helps us is the improvement in reimbursement, bringing additional payers onboard. All of that is helpful and streamlines the process for us, also reduces concerns among the providers about being reimbursed. So I think all of those things are positive. We see the growth of OMIDRIA just -- it just keeps growing. So we're comfortable with that. And I think with that I'll say -- I'll stop, I think, right there.

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Stephen Gilbertpaul Brozak, WBB Securities, LLC, Research Division - Senior Equity Analyst [4]

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Okay. Well, obviously I appreciate the color on your perspective. Going over to narsoplimab, on the -- you've mentioned you know everything on regulatory side. But I'd like to get more color on the clinical side in terms of what you're seeing because it's one of those situations where what are the clinicians giving you back in terms of information on what they expect on current standard of care and on your thoughts? And again as much color as you can give. I know it's a smaller population, but I'd just like to know about what the clinicians are giving you as far as feedback goes, please?

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

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Well, I think the response from the clinicians has been quite strong around narsoplimab and its role in the treatment of stem cell TMA. You mentioned sort of standard care now. There really is no standard care, and there is no approved treatment for stem cell TMA. We expect narsoplimab will be the first approved drug for the treatment of TMA. And I think that further what the physicians understand and in fact are helping to teach us is that this is not just a TMA issue. This is a broader issue, which expands to something called endothelial injury syndrome, which is a function of endothelial damage.

And interestingly and quite fortunate for us is that endothelial damage is a key activator of the alternative pathway. It's cellular damage. And as you know, that's what activates -- one of the things that activates the lectin pathway. So the ability we expect of MASP-2 inhibitors and specifically narsoplimab is certainly there to treat not only stem cell TMA but the other components of endothelial injury syndrome, which include graft-versus-host disease, or GVHD, veno-occlusive disease, or VOD, and diffuse alveolar hemorrhage as well as other components of endothelial injury syndrome. So the response from the docs has been really quite positive. But interestingly, not just limited to stem cell TMA but much broader to sort of the endothelial injury syndrome and its multiple components in general.

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Stephen Gilbertpaul Brozak, WBB Securities, LLC, Research Division - Senior Equity Analyst [6]

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Okay. Let me ask one last question, and I'll hop back in the queue, please? You had mentioned earlier in terms of permanent pass-through on OMIDRIA. But there was one part there dealing with specifically on the pain side. And frankly, the question relates to what are you looking at in terms of these older patients that are having cataracts lens replacement surgery and how their profile fits in this management of non-opioid alternatives. How does that -- since these are not people that are completely absent in terms of having to use it in the past. I'd just like as much detail as you can give us on that why this might be different or important and I'll hop back in the queue.

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Gregory A. Demopulos, Omeros Corporation - Co-Founder, Chairman, CEO & President [7]

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Yes. Thanks, Steve. We think it is important and we think you're on point. Look, elderly patients -- multiple studies show that elderly patients have increased risk with respect to opioids. And also these patients who are undergoing cataract surgery, often that's not the only procedure that they've undergone in the recent months, right. Many of these patients have multiple conditions, which require surgical treatment, whether those are total joint replacements or other surgical procedures. And again, those involve administration of opioids. And it's this repeated exposure that does, the studies indicate, increase the risk with respect to opioids in these patients.

When patients receive opioids during surgery while under anesthesia, several studies have demonstrated increased opioid requirements after surgery and really worse, not better, pain scores. So this phenomenon is referred to as really opioid-induced hyperalgesia and that can also play into this for these cataract surgery patients.

So yes, we think it is a big deal. And I think that the studies that are demonstrating the reduced need for opioids, the reduced need for postoperative pain medications and concurrently, reduced pain in these patients is important. So I think you're on point.

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Operator [8]

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Our next question comes from Brandon Folkes from Cantor.

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Brandon Richard Folkes, Cantor Fitzgerald & Co., Research Division - Analyst [9]

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Apologies if I missed this earlier. I've just been hopping between a few calls. So on the J-code, can you help us think about the process between receiving this provisional approval and getting permanent reimbursement? And then secondly on 721, how should we think about stem cell TMA opening up additional indications for this product? And how does that affect your thinking when you go and sit down with the FDA and agree on endpoints?

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

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Yes, sure. Thanks, Brandon and welcome. The first question was about the J-code. Until the J-code is assigned and again, we need to wait to see what -- that CMS will assign it, we continue to use our C-code. And our C-code -- obviously, the providers are well versed in the use of our C-code because they've been doing it since our first round of pass-through was received. So they're used to it. A number of the payers have it. Interestingly though, some payers just won't reimburse against a C-code. So having a J-code certainly helps.

The connection between the J-code and permanent separate payment, I don't want to address any connection there. I mean technically those things are separate. And what we're going to have to see is how our continued efforts with CMS play out. And look, we believe that certainly, given all of the clinical data provided, the reduction in complications, the better outcomes, the reduced opioid use, the preclusion of needs for -- of the need for steroids, all of these things speak very clearly to the need to make OMIDRIA accessible to patients.

The only way that that drug can be accessible to patients as freely as it should be is for it to be separately paid, as are most drugs used during surgery. It's only a small number that are not. And it's a relatively recent occurrence. So we're -- we continue to believe that certainly, OMIDRIA as the only drug of its kind that's FDA-approved, warrants separate payment. We continue to expect, and I would say remain optimistic that CMS will recognize and appropriately respond to the patient need. And I think that's really the key here.

Remember, we're talking about separate payment as it applies to CMS really only for Medicare Part B patients, right. I mean that's really only what Medicare is addressing in this specific -- with this issue around separate payment. But the VA has -- I mean the VA has said that the drug should be made available to any ophthalmic surgeon in any VA facility performing ophthalmic surgery. So I mean, you have a situation where the VA after intense review of the safety and efficacy of the drug have deemed OMIDRIA to really be at least certainly necessarily made available to surgeons. I would think -- and I think many would think that CMS would follow suit.

Your other question on stem cell with respect to additional indications. Look, we're starting with stem cell TMA. But again that is as we've learned and with the help of the KOLs with whom we're working, we've learned that stem cell TMA is really a component of this much broader syndrome called endothelial injury syndrome. So we expect certainly that the drug -- and we're planning expansion of the drug into those other components of endothelial injury syndrome: GvHD, VOD, DAH and others. Then we start moving to other indications. Where's the lectin pathway important? Well, it's certainly important in anything that has to do with ischemia or reperfusion injury, so stroke, MI, renal ischemia reperfusion injury. We have preliminary data, preclinical of course, but preliminary data in traumatic brain injury.

That starts to open up areas in CNS that are interesting to us. There are associations between the lectin pathway and multiple CNS disorders. And certainly those are of interest. So we see really the lectin pathway as a burgeoning area for clinical research and for the potential for treatment of a broad number of diseases that are currently either poorly treated or in some cases currently not treated. And that's a pretty big space where we think a MASP-2 inhibitor nicely fits.

And then you start thinking about what we're coming down the pipe with? And it's not just an antibody but now we're bringing small molecules targeting MASP-2, inhibiting MASP-2. And all of a sudden, you start to think about these much broader indications where perhaps repeated IV or even sub-cu administration are perhaps less amenable.

But boy, what if you've got a small molecule inhibitor of MASP-2? And I'll tell you our inhibitors look good. We're excited about them. We're excited to have them in the clinic next year. We'll see what -- how all that plays out. But I think what you're seeing is the building of truly a complement franchise not only around MASP-2 but around the key activator of the alternative pathway MASP-3. You put all that together, we're quite pleased and frankly, excited with the breadth of and the strength of that estate. So let's see how it all plays out.

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Operator [11]

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Our next question comes from Ram Selvaraju from H.C. Wainwright.

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Raghuram Selvaraju, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [12]

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So firstly with respect to OMIDRIA, could you maybe comment a little bit in more detail on how the CME indication data plays into the value proposition argument in favor of the drug? And whether you think this might potentially lead to any difference in marketing strategy overall going forward, especially within the context of the prospects for extending the reimbursement?

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Gregory A. Demopulos, Omeros Corporation - Co-Founder, Chairman, CEO & President [13]

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Sure, Ram. Yes, certainly, certainly, we're very focused on all of the clinical data we're generating. CME, or cystoid macular edema, is probably the most dreaded complication of cataract surgery. It can result in blindness of a patient after the patient undergoes a procedure, which is supposed to be one of the safest procedures and is -- in almost all cases results in great vision. So yes, it's a big problem.

Our ability to inhibit that problem, reduce the incidence of that problem significantly without the need for steroids associated with cataract surgery, we think is a big deal. So do a good number of our key opinion leader advisors.

So with respect to, do we think it plays into our approach to permanent separate payment? Certainly, it does. I mean every piece of data that we generate, whether it be around CME, whether it be around other complications like rebound iritis or pain or photophobia or whether it is tied to the opioid addiction problem. I mean all of those pieces of data that we are generating -- and remember, these are being generated independently by other investigators. So these are being initiated by investigators and run by investigators outside of the company. And the data that are being generated are consistent across all of them and the data show very clearly that there is no drug that does what OMIDRIA does. The reduction in complications, all of them including CME, and I would underscore CME, certainly play into our efforts for permanent separate payment not only with CMS but with Med Advantage and commercial payers as well.

I mean I think it was kind of my point earlier is we talk a lot about CMS but CMS represents in this case Med Part B. We're also talking about the Med Advantage and the commercial payers, many who are largely one and the same that we are in the throes of convincing why the use of OMIDRIA and the reimbursement of OMIDRIA is important.

So that's the focus and I think that it does play into that permanent separate payment approach. With respect to marketing, we will continue to expand our marketing efforts within the 4 corners of what's acceptable to FDA. But certainly, if we have these kinds of data, we find appropriate ways to make sure that physicians understand what the drug is capable of doing, what the drug has been shown to do and what the drug can do for them and their patients.

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Raghuram Selvaraju, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [14]

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And then with respect to the potential commercialization of OMIDRIA ex U.S., in particular in European markets, could you just give us an update on where that stands and how this might evolve throughout the remainder of this year? And particularly, with respect to any interest being shown by potential European distributors of the product?

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Gregory A. Demopulos, Omeros Corporation - Co-Founder, Chairman, CEO & President [15]

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Sure. I'll start at the back end of this and work to the front of your question which is we don't discuss our partnering efforts that may be ongoing. But what I will tell you is, look, our focus remains the expansion of the utilization of OMIDRIA in the U.S., first and foremost. When we have achieved what we want to there and when we have gotten ourselves to the point where we have that permanent separate payment, then it does make sense to start to move to the European markets as well.

And the clinical data that we're generating also helped smooth the transition for us to the European markets. But we want to make show that we develop the data that we are developing, we want to make sure that we establish the demand for the product in the U.S. and then use that to expand into Europe. So for right now, I'll tell you our focus is U.S. And what we're doing with the clinical data and permanent separate payment in the U.S, those are our areas of focus for OMIDRIA.

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Raghuram Selvaraju, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [16]

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Okay. And then just 3 quick things on 721 or narsoplimab. Firstly, with regard to TMA rolling BLA filing, can you give us a sense of how many components you expect there to be? And what might be in each component if there's 3 or 4, 5 pieces to the BLA, the rolling BLA submission? Secondly, would be very helpful if you could elaborate a little bit on potential commercial-grade preparations for manufacturing of narsoplimab and give us a sense of how easy it should be to scale-up manufacturing to a hypothetical commercial scale level? And thirdly, if you could give us an idea of whether you have better line of sight at this juncture on the time line to completion of enrollment in ARTEMIS study?

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Gregory A. Demopulos, Omeros Corporation - Co-Founder, Chairman, CEO & President [17]

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Sure. With -- there -- I'm going to have to rely at some point on regulatory to answer the specific number. We -- I can get back to you on the specific number. But there are going to be -- it's going to be a common technical document modules and there are 5 of those and how all those break out, we'll see. The advantage again of the rolling BLA is that FDA -- I'm sorry, the FDA can review those as we are submitting them. So it saves time on the back end, and we do expect to avail ourselves of the opportunity that FDA has extended to us on that front.

With respect to our commercial manufacture, we're well set there. And we've not named our commercial manufacturer, but you would expect that if we're doing this and we're serious about doing this, we're using one of the premier or the premier contract manufacturer in the world to get this done. So the manufacturing of narsoplimab is well in hand, it is reproducible, scaled up. We have -- we're effectively already there on scale. And so we're quite confident that not only are we kind of going to meet what we need to on the clinical side with narsoplimab for our BLA but that certainly we'll be able to satisfy the CMC requirements for the BLA as well with narsoplimab.

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Raghuram Selvaraju, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [18]

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I mean the ARTEMIS study, do you at this juncture have more visibility on how long it might take to get to full enrollment?

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

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We're looking at that, and we haven't put anything out publicly. We will at some point. I mean we have presentations coming up at meetings around our data. We have publications coming out around our data and frankly around the trial. So a lot of that information will be laid out.

Again, I would underscore that with the ability to gain approval on proteinuria alone does considerably shorten or expedite the time line to approval because in the setting of a full approval, it takes off the table the GFR question with respect to duration, right. I mean if we're going to rely on GFR for an approval, that's a 2- to 3-year commitment. If you're looking at GFR as really more of a safety endpoint, which we hope to be able to do based on the strength of the proteinuria data, then obviously you're shaving that time up. It's if it's an accelerated approval, you're still going to have to generate the GFR data but you're able to make the drug commercially available to patients based on the proteinuria data and then providing later the eGFR data.

So all of these time lines for us are a bit in flux. You know what we're focused on, which is making sure that the proteinuria data that we generate support hopefully a full approval and if not a full approval then an accelerated approval and we'll meet whatever subsequent commitments if necessary as they come. But the idea is to get the drug on the market as quickly as possible for IgA patients because again there is no treatment. There's no approved treatment for IgA. These patients are managed. They're managed with RAS blockade. They're occasionally managed with steroids but no treatment. And so we hope again to be the first to that market with our drug.

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Operator [20]

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

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

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Thank you, operator. That wraps up our call for today. Thanks again, everyone, for taking the time to listen in. While it's still early, 2019 is already shaping up to be what we expect will be a genuinely transformative year for Omeros with the goal of becoming a multiproduct commercial company, we see clearly within our reach.

As always, we'll keep you updated periodically and we appreciate your support. Have a good evening, everyone. Thank you.

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Operator [22]

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Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may disconnect and have a wonderful day.