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Edited Transcript of OMER earnings conference call or presentation 16-Mar-17 8:30pm GMT

Thomson Reuters StreetEvents

Q4 2016 Omeros Corp Earnings Call

SEATTLE Mar 17, 2017 (Thomson StreetEvents) -- Edited Transcript of Omeros Corp earnings conference call or presentation Thursday, March 16, 2017 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Mark Metcalf

Omeros Corp. - IR

* Greg Demopulos

Omeros Corp. - Chairman and CEO

* Mike Jacobsen

Omeros Corp. - Chief Accounting Officer

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Conference Call Participants

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* Tyler Van Buren

Cowen and Company, LLC - Analyst

* Thomas Yip

FBR Capital Markets & Co. - Analyst

* Liana Moussatos

Wedbush Securities Inc. - Analyst

* Steve Brozak

WBB Securities, LLC - Analyst

* Serge Belanger

Needham & Company, LLC - Analyst

* Elemer Piros

Cantor Fitzgerald & Co. - Analyst

* Jason Kolbert

Maxim Group LLC - Analyst

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Presentation

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Operator [1]

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Good afternoon, and welcome to 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 one week from today.

I'll turn the call over to Mark Metcalf from Omeros. Sir, you may begin.

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Mark Metcalf, Omeros Corp. - IR [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 annual report on Form 10-K, 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 fourth quarter and year-end financial results. We have some time reserved for questions after the financial overview.

Now I'd like to turn the call over to Dr. Demopulos.

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Greg Demopulos, Omeros Corp. - Chairman and CEO [3]

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Thank you, Mark, and good afternoon, everyone. We appreciate all of you joining us today. 2017 is shaping up to become a breakout year for Omeros. In 2016, we laid the foundation that will make that possible. Much of that groundwork was solidified in the achievements and successes of the fourth quarter of 2016.

Since the broad market launch of OMIDRIA, our commercial product for use during cataract and lens replacement surgery, net revenues have consistently delivered double-digit quarter-over-quarter growth, and the fourth quarter of 2016 was no exception. Net revenues of OMIDRIA for the quarter were $12.9 million, this represents a 14% increase over the third quarter of 2016, and on a year-over-year basis, a 212% increase over 2015. This revenue growth was the result of broad-based successes, including, one, an increase in the number of what we call standard of use accounts or those using OMIDRIA in more than 50% of their procedures; two, an increase in the number of new accounts ordering OMIDRIA; three, an increase in the total number of unique accounts purchasing OMIDRIA during the quarter; and four, an increase in the number of daily orders.

Total vials sold in the fourth quarter increased at an even greater rate, 22% over the third quarter and 223% year-over-year. The difference between the growth in net revenue and the greater growth in vials sold is a reflection of increased gross-to-net deductions in the fourth quarter. This increase in gross-to-net was anticipated and primarily driven by the increased utilization of the OMIDRIA share reimbursement assistance services and our volume discount purchase program, which we introduced in November.

The volume discount program provides ambulatory surgery centers, or ASCs, with rebates based on certain minimum purchase levels of OMIDRIA. Although this program has been in the market for a relatively short time, we have seen early success among the growing number of participants, with broader utilization in existing accounts as well as a meaningful increase in new accounts, enabling us to provide the benefits of OMIDRIA to even more patients.

Earlier last year, we also initiated an inventory on consignment program for OMIDRIA. This, together with our volume discount program, has helped to accelerate growth of OMIDRIA sales. Going forward, we expect that facilities will increasingly make use of both volume discounts and consignment. While these programs expand our gross-to-net deductions, the deductions should be more than offset by the increased growth in OMIDRIA sales.

As has been one of our objectives, sales of OMIDRIA to hospitals have continued to grow and mirror the split nationally for cataract surgery, roughly 35% in hospital outpatient departments and 65% in ambulatory surgery centers. We have focused on increasing our penetration in the hospitals because while perhaps slower to adopt new products, once they do adopt, they tend to remain long-term customers. Teaching hospitals or academic centers are particularly important given their ability to influence physician practices locally and regionally. This effect on regional practice patterns is enhanced through the residency programs at these teaching institutions. Graduating residents also often incorporate the methods, procedures and products that they used during their training. This is especially true of surgical residents, including ophthalmic surgery residents.

OMIDRIA is currently in use at approximately 20 large academic centers, including New York Eye and Ear, the highest volume cataract surgery hospital in the country. Other major academic centers using OMIDRIA include Massachusetts Eye and Ear, Duke University, Wake Forest University, Yale University, Weill Cornell Medical Center, University of California San Francisco, Indiana University, Ochsner Medical Center, University of Kentucky, Moran Eye Center at the University of Utah, University of Virginia and University of Minnesota.

Support for OMIDRIA also continues to grow among ophthalmic surgeons. As an increasing number of cataract thought leaders and physicians accumulate experience with OMIDRIA, podium and panel discussions of the product are regular features at cataract surgery conferences. OMIDRIA received positive and prominent exposure at ophthalmology meetings throughout 2016, and this exposure has accelerated into 2017.

In November, we announced the successful completion of the post-marketing OMIDRIA pediatric clinical trial. In the trial, OMIDRIA was well-tolerated with adverse event rates consistent with those seen in pediatric cataract surgery and in the control group. We plan to submit a supplemental NDA this year requesting expanded label language to cover patients of any age. We also expect that this submission will result in an additional six months of regulatory exclusivity for OMIDRIA.

International sales of OMIDRIA also began in the fourth quarter. Under our agreement with ITROM, distribution of OMIDRIA was initiated in the Kingdom of Saudi Arabia. Local regulatory applications are pending approval in the region, including in the United Arab Emirates. Approvals are expected throughout this year, which should lead to expanded sales across the Middle East. In addition to our partnership in the Middle East, we are currently exploring similar arrangements for the sale of OMIDRIA in other international regions.

So we continue to grow OMIDRIA revenues in the U.S. and now internationally as well. We have seen the resistance to adoption of OMIDRIA fade, particularly with respect to any lingering questions about clinical efficacy. The data are clear. There is no product that provides the clinical benefits of OMIDRIA. Reimbursement concerns are also dissipating as payer coverage continues to increase in more and more facilities access our OMIDRIA share reimbursement services. Our volume purchase discount program is driving additional sales in existing accounts and enabling new accounts to begin building and growing their experience with OMIDRIA.

We are seeing growth across both hospitals and ambulatory surgery centers that mirrors the national percentage splits for cataract surgery in these two settings.

OMIDRIA became cash flow positive as a program within three quarters of its launch. Our objective now is for OMIDRIA to generate sufficient revenues to fund our pipeline as well, and we expect to achieve that. We also are working hard to secure separate payment for OMIDRIA following expiration of pass-through on January 1, 2018. Our efforts on this front are focused on both legislative and administrative solutions. And while we alone do not control the outcome, we expect that we will be successful because providing Medicare beneficiaries with broad access to innovative drugs used during surgical procedures is the right thing to do. Stated conversely, denying Medicare beneficiaries access to innovative drugs is an untenable position.

Let's turn now to our pipeline. Because of their importance, I'm going to focus on the following assets, our confluent programs; our PDE and addiction programs; and our GPCRs. I'll begin with our complement program focused on mannan-binding lectin-associated serine protease 2, or MASP-2. MASP-2 is the effector enzyme of the lectin pathway of the complement system, a key component of the immune response. OMS721 is our highly potent and selective antibody against MASP-2 and currently is being evaluated in three clinical programs, atypical hemolytic uremic syndrome, or aHUS; IgA nephropathy; and hematopoietic stem cell transplant-associated thrombotic microangiopathy, or stem cell transplant-associated TMA.

Enrollment opened this year for our OMS721 Phase 3 program in aHUS. As previously reported from our Phase 2 trial, we have seen improvements across TMA markers and aHUS patients treated with OMS721. And to date, a good number of patients have been able to discontinue dialysis. Fast-track status for aHUS was granted by FDA. The Phase 3 trial design was discussed with both FDA and EMA, and will consist of one study that will be single-arm and open-label, in other words, no control arm. And we expect that this one study will satisfy both regulatory agencies. The design will be similar to that conducted for Soliris in the same indication.

Based on our discussions with both FDA and EMA, 40 patients could provide full approval in Europe and approximately the same number of patients would be required for accelerated approval in the U.S. FDA suggested that we consider and we plan to pursue accelerated approval. To date, we have also received orphan drug designation from the FDA for TMAs broadly, including aHUS. Additional data on our aHUS program will be presented at the World Congress of Nephrology in late April.

We also have an ongoing Phase 2 program in patients with IgA nephropathy and other glomerulonephropathies. In October, we released statistically significant positive data on IgA patients treated with OMS721. OMS721 significantly improves key endpoints of renal function and patients achieved partial remission with just 12 weeks of dosing. We continue to follow these patients, and after dosing was stopped, renal function continued to improve. And to our knowledge, none of these patients have relapsed. Subsequent data in additional IgA nephropathy patients have demonstrated similar benefits.

Given our data, and that there is no current treatment for IgA nephropathy, we will submit a full application for breakthrough designation and have discussed with FDA both accelerated approval and a significantly shortened timeline to full approval. We also are preparing a submission for EMA's priority medicines or prime, designed to accelerate evaluation of drugs that, based on early clinical data, offer a major therapeutic advantage over existing treatments, or benefit patients for whom there is no treatment option at all.

A Phase 3 program on IgA nephropathy is slated to begin later this year. We continue to evaluate data from our Phase 2 glomerulonephropathy trials and plan to share more study results in the near future.

Our other OMS721 Phase 2 program is evaluating the drug in patients with stem cell transplant-associated TMA. Here again, last quarter, we announced statistically significant positive Phase 2 clinical data for OMS721 in these patients. To date, we have treated nine patients with life-threatening post-transplant TMAs, and seven of those patients improved. The other two patients received only two to three weeks of OMS721 treatment due to reasons unrelated to the drug. They were managed palliatively and died. In contrast, patients who completed protocol-specified treatment with OMS721 showed meaningful improvement in platelet counts and measures of red blood cell destruction, specifically lactate dehydrogenase and haptoglobin levels. These data were presented in February at the tandem meeting of the American Society of Blood and Marrow Transplantation and the Center for International Blood and Marrow Transplant Research.

OMS721 has received FDA's orphan drug designation for TMAs. As with IgA nephropathy, there is no approved treatment for stem cell transplant-associated TMA. And here again, we plan to pursue breakthrough designation and accelerated approval from FDA as well as EMA's prime designation. A Phase 3 program in stem cell-associated TMA like our Phase 3 program for IgA nephropathy is planned to initiate later this year.

Our OMS721 compassionate use program continues to provide treatment to patients internationally. These are patients who, for whatever reason, are not eligible for our clinical trials and who do not have or have exhausted other treatment options. This program has provided OMS721 treatment to patients with aHUS, stem cell transplant-associated TMA and glomerulonephropathy, including patients who have failed or not tolerated treatment with Soliris.

To provide some perspective, here is an example of the compassionate use patient. A 15-year-old girl with Diamond-Blackfan anemia, which is a congenital disorder that almost exclusively affects red blood cells, the patient underwent stem cell transplantation and subsequently developed TMA. She was treated with Soliris, responded but developed pulmonary edema and Soliris treatment was stopped. Her TMA relapsed and she again was treated with Soliris, this time, at a low dose, and again, developed pulmonary edema. She was requiring platelet transfusions every day together with hemodialysis almost every other day to keep her alive. Her physician requested that we provide OMS721 under compassionate use and, of course, we did. Within three weeks of beginning OMS721 treatment, she came off dialysis. Her platelets recovered and her transfusions were tapered and then discontinued. By Christmas, she was at home with her family and she continues to do well.

The girl's recovery, while more dramatic because of her young age, is consistent with the improvements in TMA markers that we have observed in stem cell TMA patients who have been treated with OMS721 in the clinical trial. The mortality rate for severe TMA is 90% or higher. And again, we have observed TMA improvement in all patients who completed treatment with OMS721.

Now I'd like to discuss the other half of our complement franchise, our MASP-3 inhibitor, OMS906. The Omeros team was the first to identify MASP-3 as the primary activator of the alternative pathway. So from a patent perspective, we control the key activators of two of the three pathways in the complement system, namely, the lectin pathway and the alternative pathway. And we now are also developing molecules that inhibit the key activators of the third or the classical pathway.

We have reported positive data and we'll accept in animal models of arthritis and paroxysmal nocturnal hemoglobinuria, or PNH. Given the substantial advantages demonstrated over a C5 inhibitor in these PNH studies, we are preliminarily slating PNH as the first clinical indication for OMS906. Currently, we are finalizing selection of our lead and backup molecules and are preparing to initiate scale up for clinical trials.

With respect to how we plan to deliver our MASP-2 and MASP-3 inhibitors, for OMS721, we have both intravenous and subcutaneous formulations and we plan to commercialize both for different indications. For OMS906, we plan to develop a subcutaneous formulation to add to our IV formulation. In both our OMS721 and OMS906 programs, we also are aggressively developing small molecule inhibitors against MASP-2 and MASP-3, respectively.

Let's now turn to our phosphodiesterase 7, or PDE7 inhibitor program for addiction and compulsive disorders. PDE7 is considered one of the most exciting targets for addiction, and Omeros, through our issued patent position, controls the use of any PDE7 inhibitor for the treatment of any form of addiction or any compulsive disorder. With consistently positive preclinical results in cocaine, alcohol, nicotine and opioids as well as in binge eating, the data show that our PDE7 inhibitors decrease craving as well as both cue and stress-induced relapse. Importantly, studies demonstrate that PDE7 inhibitors accomplish these effects without depressing the reward system, a problem that seriously hinders the use of currently approved anti-addiction agents.

We believe that we have elucidated the mechanism for PDE7 inhibitors in addiction, and we are finalizing a manuscript for submission to a leading peer-reviewed scientific journal outlining this mechanism. IND-enabling studies are underway, as is the selection of the initial indication, and we are currently targeting the submission of an IND or CTA in late 2017 for clinical trials to begin in early 2018.

The other half of our addiction franchise is OMS405, our PPAR-gamma agonist program. Omeros has broad issued and pending patents covering the use of any PPAR-gamma agonist in the treatment of any form of addiction or compulsive disorder.

During the fourth quarter, we announced positive results from a Phase 2 clinical trial evaluating the effects of a PPAR-gamma agonist in patients with cocaine use disorder. This trial demonstrates that the PPAR-gamma agonist reduces craving and improves the integrity of brain white matter in patients with cocaine use disorder.

We also announced positive data from a Phase 2 clinical trial evaluating the effects of a PPAR-gamma agonist in heroin-dependent subjects. The clinical trial administered a PPAR-gamma agonist for up to three weeks in heroin users who were maintained on sublingual combination of buprenorphine and naloxone. The findings demonstrated a statistically significant reduction both in drug craving and in measures of anxiety.

With respect to our phosphodiesterase 10, or PDE10 inhibitor program, we are evaluating the data from Pfizer's clinical trial in Huntington's disease and Takeda's clinical trial in schizophrenia using their respective PDE10 inhibitors. Each of those trials failed to meet its endpoints. In retrospect, our decision to await these data before launching into 1 or more large clinical trials in these indications appears to have been a wise one. Despite the recent misses by Pfizer and Takeda, we believe that there is a role for PDE10 inhibition in CNS disorders. We are evaluating other potential indications and assessing our options to move forward. Given our successes in the other programs that we have discussed today, we currently have prioritized those programs over PDE10.

Let's wrap up the overview of our development progress with a brief update on our GPCR program. We believe that Omeros exclusively controls ligands or functionally active compounds for 54 of the 81 Class A orphan GPCRs. We are advancing preclinical programs on a number of these exciting targets, for which Omeros alone has compounds. The indications include triple-negative breast cancer, demyelinating diseases such as multiple sclerosis, appetite and eating disorders, osteoporosis and seasonal affective disorder.

In the fourth quarter, we also released data around another receptor that we control, GPR174. GPR174 appears to play a unique role in the immune system and we believe that Omeros is the only entity with compounds that block GPR174.

We have shown that our compounds in human lymphocytes and monocytes boost the immune response by elevating levels of specific cytokines, also resulting in reduction of regulatory T cells or Tregs. Inhibiting GPR174 represents a novel approach to immune therapies for cancer and potentially for treating other immunologic disorders. Compound optimization in animal studies are ongoing and we expect that you will hear more about this program over the coming months.

With that, I'll turn the call over to Mike, who will lead us through our fourth quarter financial results.

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Mike Jacobsen, Omeros Corp. - Chief Accounting Officer [4]

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Thanks, Greg. As Greg noted, revenue for the fourth quarter was $12.9 million, all of which was from OMIDRIA product sales. This is an increase of $1.6 million over the third quarter. Our net loss for the fourth quarter was $19.6 million or $0.45 per share. This includes a loss on early extinguishment of debt of $5.6 million or $0.13 per share related to the prepayment of our previous loan agreement. During the fourth quarter, noncash expenses were $5.2 million or $0.12 per share.

Now I'll address some details regarding the third versus the fourth quarter. Our reported revenue for the quarter increased 14% from the third quarter, while vials of OMIDRIA sold to our distributors increased by 22% over third quarter. The difference between these two values is primarily the result of increased gross-to-net deductions in the fourth quarter as the overall price that we receive per unit sold was reduced, as we had expected, due primarily to the November introduction of our volume purchase discount program. This program has had a net positive impact on our unit sales because we gain new customers and saw the volume of purchases increase in existing accounts that participated in the program.

In addition, for those existing accounts, our incremental revenues were greater than the rebates earned.

Cost and operating expense for the fourth quarter were $24.8 million, an increase of $1.4 million from the third quarter. The increase was primarily related to noncash employee stock options grants made during the fourth quarter for 2015 performance. As I mentioned earlier, during the fourth quarter, we incurred a $5.6 million loss on early extinguishment of debt related to the prepayment of our previous loan agreement.

Turning to the balance sheet. In October 2016, we entered into a six-year $125 million secured debt facility with CRG. The facility is interest-only through December 31st of 2020, and incurs interest at 12.25%, 4% of which we can defer and add to the outstanding principal at our option through March of 2021. This facility is secured by substantially all of our assets.

We borrowed the first tranche of $80 million at closing and used most of the proceeds to retire our previously existing debt. We also have the ability to borrow an additional $25 million through September 19 of 2017, if we achieve at least $18 million of OMIDRIA product revenue during any consecutive three-month period prior to June 30, 2017, or achieving average market cap of $700 million during any consecutive three months prior to the June 30, 2017. We can also borrow an additional $20 million through March 21st of 2018, assuming we achieve OMIDRIA product revenue of at least $25 million during any consecutive three-month period or have an average market cap of $1 billion during any consecutive three-month period prior to December 31, 2017.

The new CRG facility has substantially lower annual revenue covenants than our previous loan agreement, while also providing an alternative means to satisfy the covenants by achieving market cap thresholds. The revenue requirement for 2017, which is defined as total GAAP revenue, is $55 million, and the market cap at our current borrowing levels is about or approximately $525 million. In addition, any revenue shortfall that we could possibly incur can be addressed by paying the amount of the shortfall towards the outstanding principal from qualified borrowings or sales of our common stock.

As of December 31, 2016, we had $45.3 million of cash, cash equivalents and short-term investments available for general operations. In addition, we have $5 million of restricted cash as required by our loan agreement and an additional $835,000 of restricted cash and investments available to support our building leases and other operating leases.

Now let's take a look ahead. With regards to revenue, we expect that OMIDRIA revenues will continue to grow throughout 2017. With respect to R&D, we have stated in prior calls that we will adjust our research and development spending up or down based on a variety of factors, including OMIDRIA product revenues, licensing opportunities, clinical results and overall business conditions. We anticipate that during 2017, the majority of our research and development expenses will be related to Phase 3 and Phase 2 clinical programs for OMS721, and the preparation for commercial manufacturing of 721.

Selling, general and administrative expenses for 2017 are expected to increase slightly from the fourth quarter of 2016's run rate. This was primarily due to costs associated with sales and marketing programs and increased legal costs in pursuit of patent infringement claims against Par Pharmaceuticals' effort to receive FDA approval for a generic version of OMIDRIA. Interest expense associated with the $80 million outstanding under our credit facility will be approximately $3 million per quarter, of which approximately $800,000 can be deferred at our option.

With that, I'd like to turn the call back over to Greg for Q&A.

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Greg Demopulos, Omeros Corp. - Chairman and CEO [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) And our first question comes from Tyler Van Buren from Cowen & Company. Your line is now open.

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Tyler Van Buren, Cowen and Company, LLC - Analyst [2]

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Congratulations on the disclosure of -- beginning the enrolment of the Phase 2 trial in aHUS for 721, clearly a very positive update. So just -- and for what is a disease of very severe patients, I have to imagine that the agency has a lot of confidence in the efficacy of 721 to allow you guys to actually go ahead and go into a Phase 3 trial. So curious maybe to just hear a little bit more about your -- [and] the Phase 2 meeting discussions with the FDA and how that went?

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Greg Demopulos, Omeros Corp. - Chairman and CEO [3]

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We don't discuss specifics about those meetings, Tyler. And first, thank you for your comments, I appreciate it. What we have disclosed from that meeting was our discussion around the design. And specifically, that design for the Phase 3 trial will be a single study, single arm, so open label, no control arm. And the design will be very similar to that which was required for Soliris approval for their BLA. So we again remain confident, as you have pointed out, in our drug. We look forward to completing that clinical trial.

Really, the interesting part of this is as we've been moving forward with aHUS, we have had two other programs sort of rapidly accelerating through development, and those, as you know, are the IgA nephropathy study as well as the other nephropathies, meaning, membranous lupus nephritis, and also our stem cell transplant-related TMA studies. So we really have a full plate here with OMS721. To date, we have not found a maximally tolerated dose with 721. We're feeling very good about the safety profile of the drug. And clearly, we're feeling good about the efficacy that we see, at least the apparent efficacy that we see with the drug.

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Tyler Van Buren, Cowen and Company, LLC - Analyst [4]

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Okay. Can you tell us what the planned dosing regimen is for Phase 3? And also, in terms of timelines, when we might see the top line data from the study?

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Greg Demopulos, Omeros Corp. - Chairman and CEO [5]

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Phase 3 will be we expect primarily subcutaneous administration. With respect to the timelines on data, we've not made those public yet. We'll keep you informed, Tyler, as we have more information about timelines and additional data from that study.

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Tyler Van Buren, Cowen and Company, LLC - Analyst [6]

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Okay. Great. And just one final one on 721. As you think about the broader Phase 2 patient population and the efficacy data and try to compare that to what we've seen historically with Soliris, what do you think are the most relevant endpoints to compare? And perhaps, could you give us any insight into maybe the percent of patients with a complete TMA response or event-free status? Curious to maybe hear a little bit more about that. And maybe also potential timing on a publication or plans to submit one.

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Greg Demopulos, Omeros Corp. - Chairman and CEO [7]

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We haven't released the data that you're requesting there from the Phase 2 program. I mean, certainly, we think that our drug will compare well to Soliris. We also are pleased with the potential safety differences between them. As I mentioned in our initial comments, that we will have additional data from the aHUS study in late April at the international meeting that I mentioned.

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Tyler Van Buren, Cowen and Company, LLC - Analyst [8]

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Okay. Great. And on OMIDRIA, with respect to the C code transition that you referred to at the end of the year and going into 2018, maybe just a little more granularity on the mechanics there. And should we expect the price to potentially change for the product? Any insight there would be helpful.

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Greg Demopulos, Omeros Corp. - Chairman and CEO [9]

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Yes. I think, with respect to granularity of our efforts, we don't want to get too specific about what we're doing, other than we are pursuing a dual-pronged approach, one is legislatively and the second is administratively. So one obviously working through congressional avenues. The second working with CMS directly. I think that there is a good amount of support for the concept that drugs used during surgical procedures should not be packaged.

So stated conversely again, that drugs used during surgical procedures should be separately paid, really just like almost all other drugs. And we expect again that we will be successful in this effort with respect to pricing following January 1, 2018. I think that it's a bit premature to discuss that. We're doing well with the product now. Let's see how we progress throughout the year, and I think that's a discussion that we can have once, hopefully, we are successful in securing long-term reimbursement for OMIDRIA.

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Operator [10]

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And our next question comes from Thomas Yip from FBR & Co. Your line is now open.

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Thomas Yip, FBR Capital Markets & Co. - Analyst [11]

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Very happy to see progress in OMIDRIA and also 721 and other earlier, clinical pipeline products as well. So first, a question regarding the Phase 3 trial of 721 and aHUS. So is the finalization of trial designs and specifically in clinicaltrials.gov, is that contingent on the FDA's decision on the accelerated approval application that you will file?

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Greg Demopulos, Omeros Corp. - Chairman and CEO [12]

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No. As you know, there is no specific accelerated approval application. Accelerated approval is a process and that is pursued through ongoing discussions with FDA, and is based upon, in good part, data that we present to the FDA from the Phase 3 program.

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Thomas Yip, FBR Capital Markets & Co. - Analyst [13]

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Right. So what factors do you think the FDA will look at most importantly in making that decision other than the Phase 3 data? Are there other factors that could persuade them to accelerate approval?

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Greg Demopulos, Omeros Corp. - Chairman and CEO [14]

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I think it will depend on the data that we generate. It will depend on classes of patients, groups of patients that we can treat that perhaps Soliris cannot. It may also tie into potential safety differences between the two drugs. Remember that 721 does not inhibit the lytic arm of the classical pathway, which is required for antigen antibody complexing. That is your -- remember, the classical pathway is your acquired immune response. So I think there are multiple areas, Thomas. I hope that answered your question.

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Thomas Yip, FBR Capital Markets & Co. - Analyst [15]

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Yes. I guess, the most important thing to see is some preliminary data from Phase 3. And also, we expect to hear more about the ongoing Phase 2 trial as well. So I'm going to switch gears and talk about OMIDRIA a little bit. At which revenue level do you expect to begin providing revenue guidance for OMIDRIA?

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Greg Demopulos, Omeros Corp. - Chairman and CEO [16]

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I'm not sure. It's a good question. We have made the decision at present that we're not going to guide, and we have not guided. I think, at some point, as the market stabilizes, as we are able to appropriately and relatively accurately project those revenues, we will consider it. I think that now, though, that, that is premature.

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Operator [17]

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And our next question comes from Liana Moussatos from Wedbush Securities. Your line is now open.

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Liana Moussatos, Wedbush Securities Inc. - Analyst [18]

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For OMS721, you're going to have data presentations in April at the World Congress and in June at Renal Diseases. How are those data sets different from what we've already seen that you publicly disclosed? Will there be more patients? Will all the patients be -- data be presented, how will -- what's going to be different at those two meetings?

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Greg Demopulos, Omeros Corp. - Chairman and CEO [19]

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There'll be data at those meetings and in those presentations that will be from ongoing clinical work.

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Liana Moussatos, Wedbush Securities Inc. - Analyst [20]

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Okay. So there'll be interim preliminary data that we haven't seen yet or old data from --

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Greg Demopulos, Omeros Corp. - Chairman and CEO [21]

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Yes.

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Operator [22]

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And our next question comes from Steve Brozak from WBB. Your line is now open.

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Steve Brozak, WBB Securities, LLC - Analyst [23]

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Let me dive into a couple of quick questions since a lot has been asked and answered. On 721, you're going to be conceivably running multiple trials with 721 where you could, in theory, see data that actually comes back that is better in some areas than in others. Can you give us any feedback in terms of what you're seeing as far as what the clinicians are giving you on that kind of guidance? Because obviously, one of the things that is really important are the specific clinicians that are treating the patients. What do they expect? And what's your feedback on that, so far?

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Greg Demopulos, Omeros Corp. - Chairman and CEO [24]

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Well, obviously, from the incidence of compassionate use requests, I would think that they are seeing the data as positive and helpful to their patients. I think, you've raised a good point. We have multiple trials running at one time, Steve. And really, the question is, how do we get OMS721 across the finish line? Meaning, how do we get it commercialized as quickly as possible. That's really our focus here. And I think, the beauty of what we are seeing now is that we really do have multiple shots on goal within 721 (multiple speakers) --

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Steve Brozak, WBB Securities, LLC - Analyst [25]

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If I could -- about those multiple goals with IgA and stem cells, can you go into more detail about that because that's something that, I think, you mentioned, but it is critically important.

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Greg Demopulos, Omeros Corp. - Chairman and CEO [26]

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Yes, I can, to whatever extent I'm allowed to do here, but I will tell you that, look, we're very pleased. Let me take a step back. We're in a Phase 3 program in aHUS. We've met with both FDA and EMA. We're feeling comfortable with what we need to do to get that indication approved for OMS721. So let's put, right now, aHUS aside and talk about what I think you're asking, which is the IgA and stem cell transplant programs for 721. I will tell you that we are very excited about the data that we are seeing in both of those indications. I believe that also, you had mentioned, how are the physicians viewing those data. I think it is fair to say that those physicians who treat these patients are equally excited about the potential for OMS721 in these indications. We have had dialogue with FDA around these programs. We will continue to do so. We will put out additionally more data from these programs.

And I think I see where you're going with this. I want to make sure I'm answering your question, Steve. But there -- these programs, each of them or both of them could accelerate quite quickly. And we are really looking at all three of these programs and we're controlling the dials across all three. And again, the objective is get OMS721 into the market as quickly as possible with really any of the three indications. And that will continue to build upon itself. That's the objective. That's our focus. From what we're seeing today, with all of the appropriate caveats, we do expect that we will be successful.

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Steve Brozak, WBB Securities, LLC - Analyst [27]

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Great. I'll quickly switch and last question. On OMIDRIA, you obviously, you iterated all the significant teaching centers that you're in right now. Given the fact that you transitioned from teaching centers obviously to other hospital forms, regionals and such, can you give us some feedback, even if it's anecdotal, on what you're seeing on how the teaching centers have started to adopt OMIDRIA and what you would expect to happen as far as how it will start to translate and obviously penetrate the health care system?

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Greg Demopulos, Omeros Corp. - Chairman and CEO [28]

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Sure. Let's just take an example of one of those institutions I mentioned, New York Eye and Ear. New York Eye and Ear performs more cataract surgery procedures annually than any other hospital in the United States. These types of institutions are usually slower to adopt just because of their size, just because of the layers of bureaucracy. But their physicians, and frankly, the pharmacist as well when looking at all of our data, pushed hard for the ability to bring OMIDRIA into the facility.

Utilization within that facility has continued to expand. The number of physicians using it within the facility has continued to increase. And the procedures have increased. And then, you get the satellite effect from other institutions located -- other facilities located around New York Eye and Ear that look to New York Eye and Ear to see what is New York Eye and Ear doing in patient care. And when they see that OMIDRIA is an important component of that patient care, that has an effect. And I think that we're seeing that not just at New York Eye and Year but really at all of those institutions that I mentioned. Duke, Wake Forest, Mass Eye and Ear, UCSF. All of those that I mentioned have that satellite effect or that ripple effect that really does translate to increased utilization regionally, not just locally, but I think regionally.

And the importance of that is also the residency programs, right? I mean, these are young surgeons in training who are likely going to have more difficulty performing surgery than those who are well-versed with years of experience in cataract surgery. Certainly, these are young doctors who can benefit from OMIDRIA. And also, once they use that product in their training program, they tend and very frequently tend to adopt those same routines, those same products, those same practices when they move into private practice or when they move into an academic position at some other institution. So it's an effect seeding future use of OMIDRIA, and I think we've seen that pretty clearly.

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Operator [29]

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And our next question comes from Serge Belanger from Needham & Company. Your line is now open.

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Serge Belanger, Needham & Company, LLC - Analyst [30]

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A couple of questions. First, on OMIDRIA. Greg, in lieu of 2017 guidance, can you talk maybe about if you're seeing some of the same seasonality we saw last year in the early part of '17, and where do you expect growth to come from in OMIDRIA? And what -- if you expect any impact on pricing given that we should see additional use of the volume discount program?

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Greg Demopulos, Omeros Corp. - Chairman and CEO [31]

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In response to your first question, yes, we see some of the seasonality, not to the same extent that we have previously, but certainly, I don't think it's any secret that cataract surgery and other surgical procedures are slower in the early part of the year, simply because of how insurance rolls over and those deductible periods start anew at the beginning of the year, which tends to have patients putting off surgery until a good part of that deductible is already eaten through and that they don't have to absorb all of that cost in the early part of January. But as I said, we're seeing not -- the extent of that is less than what we had previously seen.

With respect to where we think the growth is coming from and will come from in the future, I think, it's going to come from hospitals and ASCs. I think, it's coming from expanding utilization within our existing accounts and from wholly new accounts who are starting to use OMIDRIA. Certainly, I think that the very early resistance that we had around OMIDRIA, that certainly seems to have waned substantially, particularly as I mentioned earlier, just the clinical pushback that, "Gee, is this really a product necessary? Does it really do what we need it to do?" I think that it is very difficult for someone to take an opposing position to the fact that OMIDRIA does do all of that. I think it's very difficult to take that opposing position credibly when you look at the data.

The third question that you asked is what about pricing with respect to the discount program. We have still been able to almost wholly maintain our ASP even with these discount programs. We continue to expect to do these programs in a very smart way, and we're monitoring it closely. Remember that our price initially was set as a requirement to qualify for pass-through. There's a threshold above which the price needs to be to qualify for pass-through. But at some point here, we're not going to be limited to that threshold but we're still comfortable with how our pricing is progressing.

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Serge Belanger, Needham & Company, LLC - Analyst [32]

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Okay. Back to the -- and you're looking to make a further entry into the hospital segment. Can you talk about the evaluation process that these P&T committees go through? They're usually pretty focused on costs. Just how they look at OMIDRIA?

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Greg Demopulos, Omeros Corp. - Chairman and CEO [33]

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Yes. Great question. Certainly, we've been successful. I mean, our distribution across hospitals and ASCs now, as we've said, reflects exactly what the distribution across the U.S. is. Approximately 35% in hospitals, 65% in ASCs. So we've clearly been successful there. You are correct that they do focus on cost. They also do though focus on clinical benefit. And I think that we clearly make a very strong case with respect to clinical benefit.

Remember too that a number of these hospitals, these large institutions are 340B facilities. So these are facilities that qualifies 340Bs by treating a sufficient percentage or number of indigent patients. And by virtue of there being 340B or having 340B status, they are then afforded government-mandated discounts. So the 340B program also helps in sort of the entree search to these hospitals and those initial discussions with the P&T committees. And then, I think, it's really the clinical data that end up carrying the day and closing that arrangement.

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Serge Belanger, Needham & Company, LLC - Analyst [34]

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Okay. And then, just regarding potential European partnerships on OMIDRIA. Is that still the plan to enter partnership in 2017? If I remember correctly, the EU marketing authorization have a shelf life, and how does that affect your partnership discussions?

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Greg Demopulos, Omeros Corp. - Chairman and CEO [35]

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Once again, you're spot on, and yes, we do plan to partner in 2017. But that's all I'll say about that at this point.

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Operator [36]

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And our next question comes from Elemer Piros from Cantor. Your line is now open.

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Elemer Piros, Cantor Fitzgerald & Co. - Analyst [37]

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What I'd like to ask is, when I look at the historical numbers, quarter-on-quarter, there is a very steady, predictable linear growth in OMIDRIA sales. So my question is that do you see at some point in 2017 perhaps, and what would precipitate a divergence from this trend? And were you hoping for an upward trajectory reported to become more of an exponential sort of growth.

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Greg Demopulos, Omeros Corp. - Chairman and CEO [38]

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Yes, I understand. Yes, we would much prefer that to be a kink up than a kink down. In answer to your question about the kink in that curve, yes, that's clearly one of our major objectives is to put an upward kink in that curve. We do believe that we can do that. We believe that the programs we're initiating help to do that. We also believe that at some point, there's a threshold of critical mass with respect to users. And once we exceed that, we also think that, that will help bend that curve upward more steeply than that linear growth that you referenced.

Surgeons in general, and it appears that ophthalmic surgeons perhaps even more so than many others, are conservative. They're slow to adopt new products. But once they reach that initial threshold, then that growth really picks up.

I'll use as an example viscoelastics. If you look at the adoption rate of viscoelastics in their early years of availability to ophthalmic surgeons, the percentage penetration was really minimal, low single digits. And yet, now, when you look at viscoelastic devices, what you see is that they are mainstay. They're used in effectively all procedures. And I think that this is somewhat reflective of surgery in general but certainly, I think of ophthalmic surgery in particular.

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Elemer Piros, Cantor Fitzgerald & Co. - Analyst [39]

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Okay. And in the 721 drug, would you please confirm that in previous patients, previously treated aHUS patients, you also used subcutaneous dosing?

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Greg Demopulos, Omeros Corp. - Chairman and CEO [40]

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I will neither confirm nor deny that at this point.

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Elemer Piros, Cantor Fitzgerald & Co. - Analyst [41]

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But in the Phase 3, we are doing a subcu?

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Greg Demopulos, Omeros Corp. - Chairman and CEO [42]

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Yes.

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Elemer Piros, Cantor Fitzgerald & Co. - Analyst [43]

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And how often would they be dosed?

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Greg Demopulos, Omeros Corp. - Chairman and CEO [44]

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We've not discussed dosing regimen publicly.

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Elemer Piros, Cantor Fitzgerald & Co. - Analyst [45]

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Okay. And one last question on the nephrology conferences that you highlighted. If you could tell us just qualitative, or maybe somewhat quantitatively, how many patients worth of data would we see? Would we see a follow-up data from the very earliest patients that you treated?

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Greg Demopulos, Omeros Corp. - Chairman and CEO [46]

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I will answer that question in this way, Elemer, we have, to date, put out only two patients from the IgA study. I'm confident in telling you that at the conference presentation, you will see more patients than what we have already put out publicly. And you will see additional data on those patients for whom we have already released data. So you will see more data on the existing patients for those who already are out in the public domain, and you will see, I expect, new patients and their data as well.

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Elemer Piros, Cantor Fitzgerald & Co. - Analyst [47]

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And would we have some aHUS patient data as well?

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Greg Demopulos, Omeros Corp. - Chairman and CEO [48]

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At the renal program?

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Elemer Piros, Cantor Fitzgerald & Co. - Analyst [49]

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Yes.

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Greg Demopulos, Omeros Corp. - Chairman and CEO [50]

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With that, boy, I'll need to check with our clinical group. I know that aHUS data is coming up later this month at -- I'm sorry, later in April at the World Congress.

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Operator [51]

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And our next question comes from Jason Kolbert from Maxim Group. Your line is now open.

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Jason Kolbert, Maxim Group LLC - Analyst [52]

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I'd like to talk a little bit about OMS721, particularly as it relates to TMAs and stem cell transplantation. Can you do me a favor and just help me understand kind of the origins of the TMA? And kind of what the treatment paradigm would look like for when 721 is going to be used in those patients so I can get a handle on what the market size might be?

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Greg Demopulos, Omeros Corp. - Chairman and CEO [53]

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Right. There's a lot in that question, so I'll try to take it in a step-wise progression, Jason. First of all, the mechanism. Endothelial damage, we believe, is the inciting event. And endothelial damage activating the lectin pathway specifically, we do know that endothelial damage activates the lectin pathway. We know that MASP-2 is the effector enzyme of the lectin pathway and therefore, inhibiting MASP-2, as does OMS721 should have a positive effect in disorders associated or temporarily downstream related to endothelial damage. The endothelial damage in stem cell transplant patients, well, you know that very well with the conditioning required and the drugs used both pre and post stem cell transplant. So clearly, endothelial damage is there.

With respect to what patient specifically, the patients who we have treated with OMS721 are those patients who really have severe thrombotic microangiopathy. So these are patients who are sick. Very, very sick. And these are patients whose mortality rate, I think, as I mentioned, would be expected to be 90% or greater. Those are the patients that we are initially treating.

With respect to what patient population would be served potentially by OMS721, well, clearly, those patient. So those patients who have already undergone -- who have TMAs and have undergone revision or modification in calcineurin inhibitors or other immunotherapies and TMA continues. Certainly, those patients are the ones we're treating now, so I would expect that would be a population amenable to treatment.

But then, I would start to look upstream, meaning, again, temporarily upstream to those patients potentially. And again, you're asking me, and I'm giving you my thoughts, I want to be very clear about that. But this is a -- TMA following a stem cell transplant, as you know very well, is an extremely severe disorder. So could one imagine moving temporarily upstream to those demonstrating changes in any markers of TMA? Sure. Potentially. I could imagine that. I think, you could, too.

So with respect to ultimately the population of patients with TMA following stem cell transplant we would treat, I think, it's likely broader than those patients who we are currently treating now.

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Jason Kolbert, Maxim Group LLC - Analyst [54]

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So it sounds like the market initially becomes not quite ultra orphan, but ultra orphan and, I'm assuming, ultra orphan-like pricing but eventually could broaden out to kind of a much significantly larger segment of the market?

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Greg Demopulos, Omeros Corp. - Chairman and CEO [55]

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Yes. Especially when you think of what other disorders are associated with TMAs. There are a number of that, there are probably -- there are over 20,000 stem cell transplants, U.S. alone. But then, you start to think about the other disorders associated with stem cell transplant, and there, I'm talking about graft-versus-host disease, or GvHD, or veno-occlusive disease as well, and you start to think about, "Gee, are there opportunities as well?" And I can tell you that, certainly, we are considering those as potential opportunities.

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Operator [56]

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And that completes the Q&A part of the call. I'd like to turn the call back over to Dr. Demopulos for closing comments.

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Greg Demopulos, Omeros Corp. - Chairman and CEO [57]

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Well, thank you very much. That ends our call for today. I would like to thank everyone for taking the time to listen in today. As I said earlier, 2017 promises to hold a series of important milestones throughout the year. And we do expect to provide additional information on a number of the programs that we discussed today and perhaps others as the year progresses. As always, to each of you, we appreciate your continued interest and support. Have a good day. And we look forward to talking with you again soon.

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Operator [58]

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Ladies and gentlemen, thank you for your participation in today's call. This does conclude the program. You may all disconnect.