Omeros Corp (OMER) 2016 Q1 法說會逐字稿

Good morning, 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 over the call to Mark Metcalf at Omeros.

Good morning, 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 filings with the SEC for a discussion of these risks and uncertainties.

Now, I would like to turn the call over to Dr. Greg Demopulos, Chairman and CEO of Omeros.

Thank you, Mark, and good morning, everyone. Also with me today is Mike Jacobsen, our Chief Accounting Officer. I'll begin today's call with a corporate update, and then Mike will provide an overview of our first quarter financial results. We also have some time reserved for questions after that overview.

So let's start with OMIDRIA. The total revenues for the first quarter were $7.4 million. Our FDA-approved ophthalmology product, OMIDRIA, had a solid quarter with net sales of $7.2 million.

During the first quarter, the growth in sell-through or unit vials that our wholesalers actually shipped to ASCs and hospitals, increased 20% over the previous quarter. Sales were restrained during January and February, but steeply ramped upward during March. In fact, March alone accounted for nearly 50% of our first quarter.

OMIDRIA sell-through for March increased 42% over February and 59% over December 2015, which is in line with our historical quarterly growth rates of 71% from Q2 to Q3 2015 and 74% from Q3 to Q4 2015. Importantly, net revenue per vial sold did not change compared to the previous quarter.

In the first quarter, new accounts continued to grow substantially. The number of new accounts added in the first quarter was approximately 30% greater than those added in the fourth quarter of 2015. This is directly tied to the number of ophthalmologists across the country who trialed OMIDRIA, a number that continues to grow week by week.

Our research shows that there is a significant difference in the degree to which surgeons appreciate the clinical benefits of OMIDRIA before and after they use the product. We have seen surgeons change from skeptics to strong advocates when they experience firsthand how the product performs, how it helps their procedures and how it benefits their patients.

Again, what is most important about our first quarter sales numbers is that March was responsible for nearly half of them. This is likely due to several factors. First, cataract surgery volume historically declines at the start of the year. CMS data show that the number of cataract procedures performed under Medicare Part B in the first quarter is about 8% below the number performed than the other quarters of the year.

In part, this is likely due to the fact that insurance deductible amounts reset as each year begins, which results in a good number of patients choosing to wait until later in the year to have surgery. Second, January and early February hold important annual ophthalmology conferences namely The Lion Eye, Cataract Surgery: Telling It Like It Is! and Caribbean Eye. And all are well attended by high-volume cataract surgeons.

Third, in January, we converted from a contracted sales organizations to an in-house sales force, replacing and strengthening roughly 1/3 of our sales force. These new sales representatives were trained in January and began making sales calls in early February. Finally, in January, we also entered into a commission-only agreement with Precision Lens to cover Midwest states, sometimes referred to as the square states, not already covered by our in-house sales force. The Precision representatives were trained on and began detailing OMIDRIA in mid-February.

Despite these first of the year headwinds secondary to surgery in general and cataract surgery specifically, together with our operational changes, first quarter growth remained strong and sales have accelerated into the second quarter.

In April, average daily vials sold of OMIDRIA to ASCs and hospitals was 32% higher than those in the first quarter. And to date, in the second quarter, the number of OMIDRIA vials sold to ASCs and hospitals is approximately 65% greater than that during the corresponding period in the first quarter.

Based on recent sales activity, net sales of OMIDRIA without any additional growth annualized to an approximate run rate of $45 million to $50 million. We expect OMIDRIA sales to continue to increase in the U.S., driving that broader physician adoption or clinical outcomes, which are becoming more compelling and reimbursement which continues to expand.

Detailed findings of recent studies were presented at the annual meetings of the Association of Research in Vision and Ophthalmology or ARVO and of the American Society of Cataract and Refractive Surgery or ASCRS, which is wrapping up just this week. Data from these investigator-initiated studies showed that use of OMIDRIA in both traditional and femtosecond laser-assisted cataract surgery resulted in the following clinically meaningful and statistically significant findings, reduction in complication rates, reduction in use of pupil-expanding devices, shorter age-adjusted surgical times, prevention of miosis in femtosecond laser-assisted surgery and improved visual acuity on the first postoperative day.

Importantly, these studies included epinephrine as a control and procedures ranged from routine to complex. The presentations were enthusiastically received and manuscripts are in preparation and are expected to be published in peer-reviewed journals, adding to the five already published peer-reviewed articles about OMIDRIA authored by leading ophthalmic surgeons.

In addition, a manuscript is in preparation comparing the use of OMIDRIA to that of pre and postoperative topical NSAIDs in cataract surgery. We expect that the results of that manuscript will further support the clinical benefits of OMIDRIA.

With respect to reimbursement, OMIDRIAssure, our comprehensive reimbursement program, has continued to have a positive impact on OMIDRIA utilization. Enrollment in the OMIDRIAssure program has continued to increase substantially month-over-month. Reimbursement continues to broaden with coverage for OMIDRIA confirmed now for approximately 97% of lives insured by the top 30 U.S. commercial payers as well as for beneficiaries across a wide range of regional payers.

Earlier this year, we initiated a speaker bureau focused on administrators and CEOs of surgical facilities, and that, too, has been well received. Our 340B program continues to expand with the most recent teaching hospitals to join the ranks of OMIDRIA users being Duke, Massachusetts Eye and Ear, Wake Forest University, University of Kentucky, University of Virginia, Henry Ford Health System and the University of Texas Medical Branch at Galveston.

In addition, there are a number of initiatives that we plan to roll out over the coming weeks that will allow surgeons and facilities to incorporate OMIDRIA into their practices even more easily and expand usage across all of their patients.

We also have begun to access international markets. This morning, we announced that Omeros and ITROM Pharmaceutical Group entered into an exclusive supply and distribution agreement for the sale of OMIDRIA in the Kingdom of Saudi Arabia, the United Arab Emirates and other countries in the Middle East. Based in Dubai and internationally recognized, ITROM markets, sells and distributes ophthalmic pharmaceutical products in significant markets in the Middle East. Under the agreement, ITROM will be responsible for obtaining market authorizations for OMIDRIA within the licensed territory, in addition to marketing and distributing OMIDRIA supplied by Omeros. We expect ITROM to begin selling OMIDRIA later this year.

Given the acceleration of OMIDRIA sales into the second quarter, our current sales run rate and the initiatives and progress that are sparking even faster sales growth, we expect to reach cash flow positive status later this year.

Before moving on to our pipeline, I'd like to wrap up our commercial discussion by officially welcoming the newest member of our management team, Leonard Blum, Omeros' Chief Business and Commercial Officer. Leonard will lead the business development, commercial strategy and planning as well as sales and marketing effort at Omeros. His primary focus in the near term will be accelerating further OMIDRIA sales both in the U.S. and abroad. Leonard brings over 28 years of executive and management experience in the pharmaceutical industry, during which time he was responsible for over a dozen product launches and several therapeutic categories, including multiple blockbusters.

Most recently from 2007 until March of this year, he served as Senior Vice President and Chief Commercial Officer at Theravance. While there, he led the MRSA antibiotic, VIBATIV, through U.S. and European filings and commercial launches. He also managed the Theravance collaboration with GlaxoSmithKline in the global Phase III development, registration and marketing of two major COPD drugs, Breo and Anoro. Prior to that, Leonard founded and led the commercial functions at ICOS, where he was responsible for the launch and commercialization of Cialis, the number one selling men's health drug worldwide.

Leonard began his career at Merck, where he held a progression of marketing and sales management jobs in the U.S. and Europe, leading business units in Germany, Switzerland and Israel. Leonard's proven track record of driving sales will be an asset to the OMIDRIA team as we continue to accelerate our revenue growth. That concludes our discussion on OMIDRIA and on our commercial activities.

I'll now turn to our pipeline. Let's start with our MASP-2 program. Our MASP-2 antibody, OMS721, targets the lectin pathway of the complement system, a key component of the immune response.

We have three OMS721 programs currently in progress: a Phase III program in atypical hemolytic uremic syndrome or aHUS; a Phase II program in complement-mediated thrombotic microangiopathies or TMAs, including hematopoietic stem cell transplant-related TMAs and thrombotic drug thrombocytopenic purpura or TTP; and another Phase II program in patients with immunoglobulin A or IgA nephropathy and other complement-related renal diseases.

Based on our meeting with FDA, our Phase III aHUS program consists of one open-label clinical trial with only a single arm. In other words, no control arm in patients with newly diagnosed or ongoing aHUS. The clinical package for the biologic license application or BLA will be similar to that, which formed the basis of approval for Soliris.

We have also received agreement from FDA on our ongoing manufacturing for both the Phase III program and for commercialization of OMS721 as well as on our nonclinical safety and toxicology plan for the drug, most of which has already been successfully completed with no significant adverse findings. We expect Phase III trial enrollment to begin later this year.

In addition, as we reported on the fourth quarter call, we also plan to pursue accelerated FDA approval for OMS721 and aHUS. Accelerated approval allows the company to market the drug, while it continues conducting confirmatory clinical assessment to obtain full approval. It is our belief that based on ongoing clinical work and well-accepted data directed to the targets for OMS721, namely MASP-2 and for Soliris, C5, the conditions for accelerated approval can be met for OMS721.

We have also initiated discussions with the European Medicines Agency regarding requirements for European approval of OMS721 for the treatment of aHUS. Our proposal includes using the same data for both U.S. and European approvals. We also are pursuing orphan designation for OMS721 in Europe. Our Phase II program in stem cell transplant-related TMAs and TTP continues to enroll. In addition, enrollment is progressing rapidly in our Phase II program focused on complement-related renal diseases. The Phase II clinical trial is evaluating the effects of OMS721 on kidney function in patients with steroid-dependent renal diseases, which include steroid-dependent patients with IgA nephropathy, membranous nephropathy, C3 glomerulopathy and lupus nephritis.

There is evidence that the complement system and specifically the lectin pathway is implicated in the pathogenesis of each of these diseases. Given the absence of available therapies in these serious diseases, if this trial demonstrates evidence that OMS721 improves kidney function, slows disease progression or reduces the steroid use in these patients, we intend to discuss with FDA a Phase III program that meets the requirements for accelerated approval.

To date in our MASP-2 program, we have dosed more than 80 subjects with OMS721. We have seen clinically meaningful improvement in patients with aHUS, with stem cell transplant-related TMAs and with TTP. We have not seen a safety signal.

A comprehensive manuscript is being prepared for submission, which details the breadth of data supporting MASP-2 inhibition in a wide range of diseases and provides the basis for redefining the current schema for the complement system. In addition, a presentation is planned at the 26th International Complement Workshop in Kanazawa, Japan directed to the beneficial effects of OMS721 in an animal model of stroke.

OMS906, the other half of our MASP-2 program or of our MASP program, targeting MASP-3 continues to progress. Recent work in an animal model with paroxysmal nocturnal hemoglobinurea or PNH, demonstrates an effect with our MASP-3 inhibitors. We are highly interested in PNH as an initial indication for our MASP-3 program, and believe that a MASP-3 inhibitor could be significantly more beneficial than a C5 inhibitor in patients with this disease. Additional work is ongoing.

Next, let's discuss OMS824, our phosphodiesterase 10 or PDE10 inhibitor in development for the treatment of cognitive disorders, including Huntington's disease. We are preparing a small Phase II trial to assess the effect of OMS824 on an end point linked to Huntington's, while awaiting Pfizer's results from its large Phase II Huntington's trial. We understand the mechanism of Pfizer's drug. And if Pfizer's data are positive, we plan to advance to a Phase III program with OMS824, a once-daily drug, unlike Pfizer's, which requires twice-daily dosing.

Now let's turn to OMS527, our PDE7 program for addiction and compulsive disorders. Addiction costs for U.S. alone approximately $0.5 trillion annually and interest in PDE7 inhibitors for this indication is growing within the pharmaceutical industry. We expect that there will be data generated soon by one or more other companies confirming our findings of the importance of PDE7 inhibitors in these devastating diseases. This becomes increasingly important, given Omeros' recently issued patent broadly covering any PDE7 inhibitor for the treatment of any addictive or compulsive disorder. We plan to move OMS527 into the clinic next year. OMS616 is our recombinant plasma and protein for the treatment of bleeding disorders and we plan to move it into the clinic behind OMS527.

Finally, our GPCR program is making substantial strides. We are advancing preclinical programs targeting appetite and eating disorders, triple-negative breast cancer, demyelinating diseases such as multiple sclerosis, neuropathic pain and osteoporosis as well as a receptor that appears to modulate T-cell regulation, important in immunologic disorders and cancer. Compounds across these programs have been optimized sufficiently to conduct animal studies and data have been generated.

That concludes our update on Omeros' products and programs. At this point, I'll turn the call over to Mike for a summary of our first quarter financial results.

Thanks, Greg. As Greg noted, overall revenue for the first quarter was $7.4 million, virtually all of which was from OMIDRIA product sales. This is an increase of 11% or $744,000 over the fourth quarter. Our net loss for the first quarter was $20.5 million or $0.54 per share. This includes noncash expenses of $4.7 million or $0.12 per share.

Now let's address some specifics regarding the first quarter of 2016 compared to the fourth quarter of last year. Our reported OMIDRIA revenue for the quarter increased 9% from the fourth quarter, while the sales of OMIDRIA by our wholesalers to the ASCs and the hospitals, or as we call it, sell-through, increased by 20% over the fourth quarter. The difference was due to typical first quarter declines in wholesale inventory. With regard to the pricing of OMIDRIA, the net revenue we received for vials sold remained constant between the fourth and the first quarter.

As Greg mentioned earlier, sales ramped up [markedly] in the second half of the quarter with the March accounting for nearly 50% of our first quarter revenues. This growth has continued through April and into May.

Costs in operating expenses for the first quarter were $26.9 million, an increase of $2.2 million from the fourth quarter, which -- and this quarter includes $4.7 million in noncash charges. The increase in overall cost were primarily related to incremental costs for 721 research and development activities, the increased noncash stock comp related to annual employee stock option grants and some of the legal costs associated with the Par lawsuit.

Turning to the balance sheet. As of the end of the first quarter, we had $13.2 million in cash available for our general operations and $10.7 million of restricted cash, primarily tied to our debt agreement with Oxford Finance and East West Bank. As you may recall in December of 2015, we entered into a $70 million debt agreement with these lenders, increasing our outstanding borrowings to $50 million. We have the ability to borrow through June of next year an additional $20 million in two tranches of $10 million each, depending on the achievement of certain OMIDRIA revenue milestones. This loan requires interest-only payments through July of 2017.

Now let's take a look ahead of what we expect regarding our operating expenses. With regard to research and development, 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 and additional capital inflows. We anticipate that during 2016, the majority of our research and development expenses will be related to our Phase III, Phase II clinical programs for OMS721 and the continuation of the technical transfer of OMIDRIA commercial manufacturing to Hospira.

Selling, general and administrative expenses for 2016 are expected to increase slightly from the first quarter of 2016. As previously discussed, the cost of our in-house sales force is effectively the same as for the contract sales force, but we will have some increased costs throughout 2016 in connection with the Precision Lens commissions and legal cost enforcing our patents against Par Pharmaceutical.

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

Thanks, Mike. Operator, let's open the call for questions.

(Operator Instructions) Our first question comes from Liana Moussatos with Wedbush Securities. Your may begin.

Thank you for taking my questions and congratulations on all your progress. Can you tell us about the size of the Middle Eastern market for OMIDRIA? And what the revenue split is with ITROM? And also, can you remind us what are the components of cost of product sales and how should we think about them going forward in 2016?

Yes. Let me first give you the number. There's not a very good number for the Middle East, but it's roughly about in the territories that we're talking about 0.5 million procedures annually. With respect to the revenue split, we have not provided that information. What was your -- what was the third part of that question, Liana?

What are the components of cost of product sales? And how should we think about them going forward in 2016?

Sure. It's product that's obsolete. It's our shipping costs and it's also our costs from the 3PL, the distributor costs associated with the 3PL. We would consider those largely staying about the same. Total, it's about 5% of sales, and we would expect that number to remain pretty standard going forward.

And can you remind us about your cash reserve? You have an ATM in place and anything else?

Yes, we have an ATM in place, as you would expect for cash, it's always the same approaches. It's partnering dollars, it's debt and it's equity. We are obviously, can access, we believe all three of those throughout the year and we expect that again. We don't need much to become cash flow positive.

Thank you very much.

Our next question comes from Steve Brozak with WBB Securities. Your may begin.

Hi, good morning, Greg and team. And thanks for taking the call. Greg, I'm going to dive right in here because there was something that -- you looked -- when you were saying the initial part about the sales increase that you were looking at, you brought in, I think 1/3 new folks. And you've started to see a [kickup] in terms of sales towards the end of the quarter. Can you give any kind of detail as to what the lead time is for typically what you would expect on these new types of salespeople? Because obviously, there seems to be like a different kind of paradigm you're talking about where in the beginning, there were slower observations. But towards the end, you're starting to pick it up. And I want to know what to read into that and how you can explain that? And what we can take away from that now and into the future? And I've got a follow-up, please.

Yes. I think -- thanks, Steve. I think a couple of answers to your question. First, I mean, the restrained sales in the first part of the quarter, I think, have multiple factors feeding into that, and I went through those, I think, in the script. And I would be happy to touch on those again if you would like. But I think, also, with respect to your question about really the sales cycle, that's about -- that remains at about 8 to 12, 10 to 12 weeks with respect to how quickly physicians trial. And then from trial, move to ordering small amounts and then become really confirmed OMIDRIA users.

You're correct in that what we did in the first part of the year was change out about 1/3 of the sales force. And they trained in January, hit the field in February. And yes, we are now seeing, we believe, the effects of their efforts, but also just the external factors, the growth that occurs in the procedures being performed during this part of the year and throughout the rest of the year as opposed to the first quarter.

And so following along those lines, you got these folks that have been brought in that seemed to have added in this acceleration because it isn't -- this isn't de minimis, it's very significant. And the other part, obviously, people care about is on the reimbursement. You're still seeing the same trends in terms of reimbursements and all the questions as far as that goes. Is that also still accurate?

Yes, that's accurate, Steve. Yes, it is. And you're right, the growth rates in the second half of the quarter ramped up steeply and actually have returned to the same trajectory that we were seeing from Q2 to Q3 and Q3 to Q4 in 2015. So we're quite pleased with that. That growth rate was seen in March, but I think more importantly, has been sustained through April and through this first part of May. And again, we're pleased with what we're seeing there. It confirms to us our confidence in our ability to achieve cash flow positive status later this year.

Okay. And my last question, I guess we're no different than any other bank. We're seeing a lot of activity interest in business developments. Licensing deals, you just obviously just announced one. With the different number of programs that you've got, and I know you can't obviously, without breaking you off to EBIT. You're constantly being pinged, I'm sure, on different business development, different collaborative deals.

I would say that that's one of the arrows in your quiver in terms of if you were to need additional funding or creative funding or any collaborative funding that, that would be something that you would have an option to. Is that a good way to look at it given how many programs you got and how much time there is in a day for you to pursue each of these programs as well?

Yes, Steve. We don't speak directly about our funding plans or strategies. But you've certainly identified one of the arms, which is partnering. And I don't think it would be surprising to anyone to find that there's interest in a number of our programs, frankly, including OMS721, OMS527 and other of our programs. That's an option. Certainly, debt is an option. There are avenues here for us to expand our debt as you might imagine, and we also always have the third option of equity. So those are the options and that's where we currently stand. And again, we expect that we'll be moving pretty quickly here to achieve that cash flow positive status by year-end.

Well, again, thank you for taking the question very much. Everybody is looking forward to seeing how the sales ramp in Q2 given the moment you've got. So I'll hop back in the queue. But, again, thanks and congrats.

Our next question is from Tyler Van Buren with Cowen & Company. You may begin.

Hi, good morning and congratulations on the momentum that you're experiencing with OMIDRIA at the moment. With respect to the second half Q1 acceleration, it was very helpful to hear about the factors that were restraining the product early on, and then now some of the growth drivers that appear to be sustainable throughout the year. But as we take a step back and look at the overall market opportunity, has anything in your eyes changed recently? I just want to get kind of your updated thoughts on the overall market opportunity and potential for this product.

Not at all. In fact -- and I'm assuming when you say change, you mean are we more conservative in what we think the product can achieve. The answer to that is no. In fact, what we see with respect to what's coming out of the investigator-initiated studies, what's coming out of the manuscripts are things that frankly only we believe will drive further adoption of OMIDRIA throughout the cataract surgery field. When we speak to physicians, who have actually used the product -- and I underscore actually have used the product because that's a little different than folks who have never used it and have not seen the benefits firsthand.

As I said earlier in the opening remarks, I believe that there is a meaningful difference between those who actually tried the product and have it in their hands. Once they do, I think it's difficult for them to go back to anything else, and those are certainly the reports that we get. So our focus is how do we expand that base of cataract surgeons who are trialing the drug, who are then converting to users.

But no, in short, to your question, if anything, we're seeing the opportunity just expand. For instance, this manuscript that will be published, we expect some time soon, directed to use of OMIDRIA versus use of topical NSAIDs pre and postoperatively. I don't want to presage those findings. But let's just say, should those findings be positive for OMIDRIA and show that: Gee, OMIDRIA can be as effective as pre and postop NSAIDs. The importance of that, I think, would be quite significant. So if anything we see, we see the opportunity growing.

Yes. Apologies if I wasn't clear, that's what I was suggesting given the improved dynamics of the opportunity you viewed as potentially more significant than what you had originally. Have you given any thoughts on what you think the ultimate peak opportunity might be? And if there's any relevant products that could be good comparables out there?

I understand the question, and I'd prefer just to -- rather than to project a peak sales number, I think the answer is, in part, again found in the clinical data. You remember that our Phase III clinical data were pretty constrained with respect to design. So there were no IFIS patients or intraoperative floppy iris syndrome patients. There were no femtosecond lasers used. There were no other more complex components of cataract surgery in those Phase III studies, simply for purposes of standardization.

But since the product has been out now in the hands of surgeons in the real world, the product is being used with femtosecond laser. It's being used in IFIS cases. It's being used in pseudoexfoliation cases, all of these cases that were not included in the Phase III program. And the data are consistently and resoundingly positive. So in fact, this was one of the themes that was brought out at ASCRS, which I believe is wrapping up today.

So I think that should underscore, I think, where the product can ultimately -- what sort of levels that product can reach.

Great. And just one last question. Clearly, you all are investing a lot in the launch of OMIDRIA and increasing sales force. How do you all think about potentially adding another product to the bag? And in what way might that be possible?

Thanks, Tyler. Certainly, we think about that. We have a dedicated sales force to OMIDRIA that is detailing cataract surgeons in the ASCs and in the HOPDs. It would make sense for us to lever that strength with another product. One might think that we are exploring those opportunities. We don't see ourselves as an ophthalmology company with the kind of pipeline that we clearly have. But I think adding another product or one or more other products to the bag of our sales representatives when they're already making those calls would only be cost effective and we're interested in that.

Great, thanks, again.

Our next question comes from Jason McCarthy with Maxim Group. You may begin.

Hi, Greg, congratulations on all the success so far with OMIDRIA and ramping those sales. I want to steer the conversation away from commercial and OMIDRIA over to the pipeline. And I was wondering if you could walk us through -- I know for OMS721, enrollment will start later this year. Can you give us a sense of how fast you think that trial could enroll? Would there be some interim looks at the data? And at what point would you see enough data to be able to commit the filing of BLA? And just in addition to that, when can we see some data points from the Phase II in HSCT-related TMAs and the Phase II in real disease? Thank you.

Yes. Thanks, Jason. With respect to time lines for the Phase III study and pace of enrollment, we are continuing to add sites for that Phase III program, and those sites are worldwide. We do expect to be able to enroll that program at a reasonable rate. With respect to the open-label component of it, I mean, the advantage of being open-label, obviously, is the ability to see those data as they come in. Assuming that we're seeing a signal similar to what we have seen in the Phase II study, when we felt like we had enough of those data points, we would expect to take that to the FDA and again discuss the accelerated approval with them. So I'm hoping is that answering your question?

Yes.

Okay. Now let's turn to your Phase II question, which was the HSCT and the renal disease question. With HSCT, the Phase II data that we have already released demonstrated effect of OMS721 in HSCT. That becomes very important for a couple of reasons. One is, clearly, there is no treatment for these patients that develop significant TMAs and can quickly decompensate and, frankly, pass away. In fact, some of the difficulty just in enrolling that study is getting to these patients quickly enough prior to their demise.

But what you see in the Phase II data that we've already released on stem cell is that 721 broke -- completely broke that TMA. And so we're looking at really two parts to the stem cell program. One is treatment, and that's the program that we're currently focused on. We are accessing patients broadly. There's a lot of interest out there in the transplant community in 721. And the objective there is to get to them early enough so that we can treat them, and we believe that now we're capable of doing that. And with a few more patients, actually our expectation would be to go to the FDA -- assuming those data are positive, go to the FDA, requesting accelerated approval, likely breakthrough designation and a Phase III trial. So we don't think we need many more patients in stem cell transplant to do that.

The other component of that is the prevention of stem cell transplant, and that's another program that we are designing here. The importance of that is it has reached through to other diseases, not just stem cell transplant-related TMAs, but potentially veno-occlusive disease and graft versus host disease.

Turning to the renal question that you had, that program is enrolling quite quickly, and our expectation is that we will have data from that study this year. We frankly do expect, and I'm not trying to guide here to an outcome. I'm simply telling you what our expectation is that we will see that 721 can limit the need for steroids in these steroid-dependent patients, which again would be an important advance, one which we would move quickly to discuss with the FDA how to proceed to a Phase III program.

So I think that all of those studies are well in hand. They are diseases, certainly, aHUS is an ultra-orphan. The others are orphan diseases. But I think that we have access to the patients. We're developing a strong following within the academic communities and among the clinicians who treat these patients. And I think that all of that will continue to serve us well as we move to accelerate enrollment.

Great. Thanks for taking the questions.

Our next question is from Serge Belanger with Needham & Company. You may begin.

Hi, good morning, Greg. I just have a couple of questions. First on OMIDRIA. Can you tell us if there was any channel inventory changes throughout the quarter? And I think you touched upon the reimbursement cycle in the prior question. Has that stabilized now? And do you expect additional shortening of the cycle? And the last one for OMIDRIA, any other seasonality effects you foresee for the rest of the year?

Yes. Thanks, Serge. First, with respect to the channel, we were effectively one week down going into the beginning of the year and probably at normal levels at the end of March. With respect to the sales cycle, we're finding that it contracts, but you still have to get folks through the multiple layers of: one, trial; two, once trial, ordering first order, which is a smaller order; and then from there, moving to a confirmed user with larger orders. That process still sort of takes that 8 to 12, 10 to 12 weeks that I mentioned initially.

Your third question was about seasonality, I believe, and, no. The real seasonality is Q1 in cataract surgery. And I think, as I mentioned in the comments, I think there are a number of components to that. One is just deductibles reset at the beginning of the year and most people to want to have to write a check for the deductible component of a surgical procedure in one shot, and that's why folks tend not to. And this is not specific to cataract surgery. It's pretty generalized to surgical procedures. But there's a reticence to incur those costs and surgeries then are performed or scheduled a little later in the year.

The other real component on the ophthalmic side is just all of the conferences in the January, early February time frame. And conferences in very nice places, ophthalmologists tend to go to very nice places for these conferences, which means that they're attractive. But we don't see really any other seasonality other than those that you would normally expect around the holiday seasons, et cetera. But even there, again, because of the deductible issue, patients tend to prefer to have those procedures prior to the end of the year, prior to the resetting of deductibles.

Okay. And one last question. It looks like your targets to reach cash flow positive status has changed slightly from the prior update. I think in the past, you had said by midyear. You're now later -- you're now saying later this year. What is behind that change? Any changes?

Yes. Yes. Well, actually that -- it wasn't quite by midyear. It was by the mid-part of the year. That's a -- there's a large mid-part of every year, Serge. So what we're saying is later this year in 2016, that could be in the latter part of the mid-part or that could be in just the latter part of the year that we expect to be cash flow positive. I think if you look at the numbers from Q1 and you compare those to what was happening Q3 and Q4, what you really see is Q3, Q4 with a nice trajectory. Then all of a sudden you see January and February, effectively flattening out. And the reasons for those are the ones that I think we discussed. No one can be certain for what they were. But certainly, the reasons provided I think make eminent sense.

But then what you see is March, boom, you're right back up, that trajectory continues or frankly the slope maybe even a little steeper. And that continues on through April and May. And so when we look at that, this is what's really giving us the confidence to say cash flow positive later this year.

A small hiatus in January, February, one that we thought might be there to an extent particularly given our turnover of our sales force from the contract to the in-house and the other components. But I'll tell you, it was a little concerning when we were watching those numbers and all of a sudden, we just kept saying, well let's wait and see what happens in March and then March came through and then April continued and May continued after that.

So we're pretty confident in the growth rate here. What we're seeing is continued utilization by new accounts, which is obviously the important piece here. You've got to grow this market in two ways, one by increasing the number of procedures using OMIDRIA by each of the facilities or physicians who currently use OMIDRIA. And we've been hitting that very hard and we have additional initiatives which should drive the utilization of OMIDRIA even further in those already using. But frankly, it's also you've got to build that base, and we're building that base through new accounts every single day.

So we're quite pleased with that. We'd always like to be doing it better, doing it faster and that's why we focus new initiatives. We're not afraid to try new things. What works, we stick with. What doesn't, we quickly shed.

Okay, thanks, Greg.

Our next question is from Thomas Yip with FBR and Company. You may begin.

Hey, good morning everyone. Thanks for taking my questions. I'm very glad to hear your progress in OMIDRIA and your other pipeline assets. My first question pertains to OMS721. Just wondering if you can walk us through what are the final steps before the Phase III aHUS trial can begin enrollment other than ramping up sites.

One more time, Thomas, I'm sorry, you were breaking up.

Yes. Just can you walk us through what the -- what are the steps are there in order for the Phase III 721 trial to ramp up enrollment this year other than opening up sites.

Sure. I mean, obviously, the most important is enrolling the -- is getting the sites up and running and operational for the Phase III program. That is the number one priority for that program. There are still some minor modifications that need to be made to the protocol design. It's running the protocol through the appropriate IRBs or medical ethics committees. But in general, I think we're in pretty good shape.

That's good to hear. I also have a question about -- a little bit on the finance side. So your cash flow target, does that include potential 824 R&D costs for this year?

Yes, it does. Now when we say cash flow positive, remember that the product has been cash flow positive, meaning within the -- within its program for months now. When we're talking about cash flow positive, we're talking about the operational expenses for the company.

Okay. I have one final question for your 527 asset. When should we expect to see some preclinical data presentation?

Good question. I think that we will be speaking more about 527 as we begin to move it toward the clinic. As I said, there will be a manuscript that will be forthcoming around 527, its mechanism of action, the full data set that has been generated. We expect that seminal paper to be published in one of the premier journals and our expectation is to get that submitted here in the not-too-distant future.

Okay, sounds good. We'll look forward to that update. Thanks again for clearing my questions and looking forward to your next update.

Our next question comes from George Zavoico with JonesTrading. You may begin.

Hi, thank you. Hi, Greg and I welcome Leonard to the company. It's nice to see the momentum going forward. A couple of quick questions, I think, given the time constraints here already.

Regarding ARVO and ASCRS, you mentioned a lot of endpoints that were being monitored and published, but you didn't mention pain. That was one of the Phase III issues. I would imagine that's also part of the endpoints that we're going to be talked about and --

Yes, absolutely. The reduction in postoperative pain is clearly one of the focuses.

Okay. And then with regard to your revenue of about $7.4 million, about that for OMIDRIA, if you divide that by the average cost, you end up with treating just so much higher than 20,000 eyes, which first of all, is that accurate? And second of all, I mean, that's a mere fraction of the total potential market, is that correct? Because that's somewhere up in the 1 million or 2 million eyes, if I remember correctly. And according -- and related to that, you mentioned some of the higher-risk operations that are now using OMIDRIA. Could you -- is it also being used a lot in the low-risk eyes as well?

Yes. I'll take those questions in reverse order. Absolutely, it's being used by a good number of surgeons broadly across their practice, so in simple procedures, in complex procedures as well. So IFIS, pseudoexfoliation, other cases that include femtosecond laser, all of the cases, George, are amenable and are being used, frankly -- are using OMIDRIA across all of those.

With respect to your question about number of procedures and percentage of total available procedures that can be accessed, you're right. There is a very large segment of the market that we have not accessed and that's what we're focused on accessing.

Okay. And along those lines of reimbursement, you mentioned something like 90-plus percent of covered lives of the 30 top -- I think you said 30 top insurers. I mean, when you take all that into account, who's left? I mean, that sounds like that's pretty much the entire U.S. population.

Yes. Well, we -- the coverage for OMIDRIA is broad. 100% of the Medicare Administrative Contractors cover it and reimburse for it. Again, I said of the top 30 commercial payers in the U.S., coverage is confirmed for 97% of them. Again, that coverage and payment can depend on specific contracts with specific facilities. But yes, the reimbursement has been growing -- continues to grow for the product. And then the OMIDRIAssure program, which stands behind all of that on behalf of the patient really makes it, I think, quite a robust program and really protects the patients here. And by way of protecting the patients, obviously, certainly helps the facilities.

It always sounds I feel like you're getting reimbursements faster than you're getting sales reps to the ophthalmologist. Is that fair to say almost? I mean, given that much coverage, but you're not -- you've still got a lot of ophthalmologists to reach with your detailers.

I'm not quite sure I understand the question. But reimbursement has been ticking up quickly. Our reps do get to the sites and to the facilities quickly and their objective, obviously, is to continue to expand the sales and you see it. You see it (multiple speakers) --

-- 10- to 12-week delay, comes in there, I guess, right?

Yes, right.

Regarding the patent infringement, okay, so your March '16 patent, the new patent that was granted, what's the next step there? I mean, it seems to me that, that patent could potentially go up against -- or I'm not sure what exactly the legal term is, but could sort of invalidate some of the claims that Par have against OMIDRIA. Can you -- I know it's a legal proceeding underway, so you may not be able to say very much, but is there any clarification you can give regarding that case?

Well, we don't speak about the legal proceedings more than to say that we have asserted against Par, and we remain very confident in the strength of our patents. I think as we put out recently, we issued a release around a fourth patent that Omeros received on OMIDRIA. And at that time, that patent was directed to pieces of prior art that Par had put forward at that time. And I think, again, all of that was blessed off by the examiner in the issuance of that patent.

Again, I think that this is kind of business as usual for Par. We take it as a compliment that Par feels that this product is worthy of their focus, but we're very confident in our ability to defend that. It is not something that I lose sleep over at all. It's in good hands. We're dealing with that as it needs to be managed. But I really -- I've got to tell you, George, I don't have undue concerns about that. We're taking it seriously as we should, but I am very confident that we'll prevail, that our patents will prevail.

Okay. And then, finally, like, one or two quick questions with 721. Any update on the Finnish patient?

Other than that, the treatment has begun for that patient. And to date, the patient's tolerating treatment well. But we're still early in that treatment.

Okay. And regarding the Phase II renal trial, you -- according to clinical trial looks like you're expecting enrollment about 16 patients with four conditions. Are you stratifying to get four of each one of the conditions? Or are you pretty much -- you're coming as -- enrolling as they come?

Enrolling as they come. I mean, of course, we want to have that spread across those four, but we're enrolling as they come and we'll treat each cohort separately.

Okay, great. That's it, thank you very much, Greg.

Our next question is from Liana Moussatos with Wedbush Securities. You may begin.

I just have a follow-up question on expected clinical data releases this year. You've mentioned on 721 Phase II for renal diseases some data from that and two publications, one for 527 mechanism of action and one for OMIDRIA versus topical NSAIDs. Are there any other publications or data presentations clinical for this year?

Yes. I mean, I think that we'll be putting out 721 data as you said from our Phase II program or programs. There will be publications on both 721 and 527. I think there will be more data coming out of the GPCR program. So I think that there's going to be a long line of data and journal articles publications throughout the year.

Thank you very much.

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

Thanks, operator. That wraps up our call for today. Thanks, again, everyone for taking the time to listen in. OMIDRIA sales are growing nicely. And the remainder of the year holds a number of exciting milestones for Omeros. As always, we appreciate your continued interest and support. Have a good day. Thank you very much.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day.