Omeros Corp (OMER) 2017 Q4 法說會逐字稿

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 1 week from today.

I'll turn over the call to Jennifer Williams, Investor Relations for Omeros.

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 financial results. We have some time reserved for questions after the financial overview.

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

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

I'd like to begin this afternoon's report with an update on OMIDRIA, our FDA-approved ophthalmic product. Total revenues from OMIDRIA sales reported in the fourth quarter were $13.8 million and 2017 OMIDRIA revenues totaled $63.8 million, an increase of 56% over 2016.

Our fourth quarter net loss was $16.6 million or $0.34 per share, which includes noncash expenses of $4.5 million or $0.09 per share. During the fourth quarter, we nearly reached breakeven cash flow status with our overall decrease in cash, cash equivalents and short-term investments equaling only $3.1 million.

So now let's examine the numbers more closely. As part of this discussion, it's important to note that pass-through reimbursement for OMIDRIA expired as scheduled at midnight on December 31, 2017. During October and November, vials sold to ASCs and hospitals or sell-through increased 18% over the corresponding period in the third quarter. In early December, however, likely given uncertainty regarding OMIDRIA reimbursement beginning January 1, a large number of ASCs and hospitals began depleting their respective on-hand inventories without reordering.

Despite this December reduction in sell-through volume, OMIDRIA sell-through for the entire fourth quarter was, in fact, the same as that for the third quarter. Also unit pricing has not changed. So if the number of unit vials sold and the pricing were the same in both Q3 and Q4, why were fourth quarter net sales nearly $8 million less than those for Q3? The answer is accounting requirements. Under our accounting policies, we are not able to recognize the majority of the revenue related to OMIDRIA inventories held by our wholesalers at December 31 because of uncertainty around OMIDRIA reimbursement and the result in reduced sales in the first quarter.

Also included in that $8 million difference is a $2.4 million charge to revenue that we recorded in the fourth quarter for vials that we expect to be returned to us in 2018 by ASCs and hospitals. Both lost inventory and lost return revenues, we expect to recapture in 2018 when OMIDRIA sales ramp up again.

Given uncertainty regarding separate payment for OMIDRIA, sales in Q1 have been reduced at both ASCs and hospitals. A substantial majority of our OMIDRIA customers are awaiting resolution regarding reimbursement. And most are largely suspending use or employing the product on a selective basis only. We expect this situation to persist until separate payment has been restored for OMIDRIA or until we decide to implement our alternative selling strategy. Either way, we expect that facilities will return to previous utilization levels and the growth will continue once we have resolved for customers the question of how we will be selling OMIDRIA.

To be clear, the prospects for ongoing separate payment for OMIDRIA remain viable. One option is legislative. There is bipartisan, bicameral, multi-organizational and broad corporate support for legislation already introduced in Congress that extends the pass-through period from 3 to 5 years, which would apply to OMIDRIA and other drugs for which pass-through expired as of January 1. But for procedural issues, we expect that this legislation would have been included in the recently passed continuing resolution. There are near-term opportunities for Congress to address this provision direct to pass-through extension and we support efforts in the house and Senate to enact it into law.

Another route that we are pursuing is administrative, meaning a direct fix by CMS to ensure separate payment for OMIDRIA and potentially other drugs that are currently packaged as part of the surgical procedure fee. CMS has packaged OMIDRIA by characterizing it as a surgical supply. This characterization is inaccurate. A surgical supply is something that is necessary and integral to the procedure: a drape, a gown, a glove, a sponge, a lap. OMIDRIA is not a surgical supply. It is an FDA-approved drug with a therapeutic indication that is used at the discretion of the surgeon based on the specific characteristics of an individual patient. It's a drug that reduces complication rates and improves outcomes. Our discussions with CMS are ongoing, and CMS has heard from leading professional societies on this topic.

One thing is certain. Providing Medicare beneficiaries as well as children and adults insured by Medicaid, access to outcome-improving products is good policy. And both patient safety and patient access to innovative drugs like OMIDRIA are important to Congress and the agency. There is a nationwide movement among surgeons and administrators to facilitate access to OMIDRIA by urging its continued reimbursement. We understand that a slew of letters, phone calls and e-mail messages have been received by both CMS and by members of Congress urging them to take measures to ensure that patients have access to innovative products by restoring reimbursement for OMIDRIA and other drugs that have lost pass-through status.

In the case of OMIDRIA, the physicians and administrators' reasons for needing to provide OMIDRIA to their patients include improved patient outcomes, greater patient safety, reduced complication rates, decreased use of pupil expansion devices and the associated cost savings. They point out the lack of suitable alternatives and underscore the problems that they are encountering and the risks to which their patients are being exposed in the absence of OMIDRIA.

It's clear that OMIDRIA makes a major difference for physicians and their patients, and that's why we have seen such and are appreciative of that ardent support from our customers for continued separate payment.

So while there are no guarantees, we remain optimistic that separate payment will be restored in the near term for OMIDRIA and for other drugs that recently came off pass-through.

While recognizing that reimbursement uncertainty is meaningfully affecting immediate sales of OMIDRIA, given that drugs like OMIDRIA should be separately reimbursed and the progress that has been made toward that end, we believe that our current pursuit of separate payment for these products is in the best interest of patients, physicians, and in the case of OMIDRIA, our shareholders. Should that approach prove unsuccessful, we will then implement our alternative selling strategy.

Physicians, facilities and our shareholders are awaiting clarity with respect to both reimbursement and the way in which we sell OMIDRIA and that clarity will soon be provided.

I mentioned earlier that physicians and administrators nationwide are urging lawmakers and CMS to restore separate payment for OMIDRIA based on the patient benefits and improved outcomes seen in their own practices and facilities. The benefits and better outcomes obtained with OMIDRIA have been confirmed and investigator-initiated clinical studies published in peer-reviewed journals. These publications have consistently shown the superior performance and outcomes of OMIDRIA compared to investigators' previous standard practices. Four OMIDRIA studies were published in 2017 demonstrating that, one, preoperative administration of drugs is not as effective as intraoperative delivery of OMIDRIA during cataract surgery; two, OMIDRIA reduces both complication rates and the use of pupil-expanding devices during cataract surgery; three, OMIDRIA is superior compared to phenylephrine or ketorolac in maintenance of pupil diameter; and, four, OMIDRIA may preclude the need for pre- and/or postoperative topical NSAIDs used during cataract surgery.

Two more manuscripts detailing independently conducted OMIDRIA studies have already been published this year. One of the studies examine surgical time, visual acuity and complication rates with OMIDRIA compared to epinephrine added to the irrigation solution. For all of the variables, OMIDRIA showed superiority over epinephrine.

The other study looked at the use of OMIDRIA in a group of patients deemed to be at risk of needing pupil expansion devices. When OMIDRIA was used, none of the patients required pupil expansion devices. When epinephrine was used, a full 50% required pupil expansion devices. The author also found that surgical time was substantially reduced when OMIDRIA was used.

In addition to the published studies, 4 new abstracts from investigators were accepted for presentation at the meetings of the American Society for Cataract and Refractive Surgery coming in April. Without prematurely disclosing those presentations, these new data are directed to the use of OMIDRIA in patients with intraoperative floppy iris syndrome in patients undergoing femtosecond laser-assisted cataract surgery and in other patient populations seen by these investigators. And OMIDRIA is now indicative for both adult and children. In the fourth quarter, FDA approved our supplemental NDA supporting the expansion of OMIDRIA label to include use in children. Together with the label expansion, FDA granted OMIDRIA an additional 6 months of U.S. market exclusivity.

Now let's turn to our current financial condition. At year-end, we had $83.7 million in cash and cash equivalents. And for the fourth quarter, we were nearly cash flow breakeven. In addition to that $83.7 million, we collected another $17.1 million of receivables, which were outstanding at year-end.

Recently there has been confusion and public misrepresentations, whether innocent or intentional, regarding our ability to comply with covenants under our CRG loan agreement. Our loan agreement requires us to satisfy with, respect to each year through 2021, either a minimum annual revenue amount or a market capitalization threshold. To be clear, the minimum annual revenue amount is calculated using overall GAAP revenues, including not only product sales but also grants and partnering-related revenues such as licensing fees, milestones and royalties. For 2017, we not only met but exceeded the revenue requirement solely from sales of OMIDRIA. This means that the market capitalization requirement is irrelevant for 2017. The date for the market cap assessment applicable to 2018, even if required, will occur in late February or early March of 2019.

We have the ability to borrow up to an additional $45 million under our credit facility with CRG subject to customary closing conditions. Earlier this week, CRG agreed to extend to May 20, the date by which we can borrow at Omeros' sole discretion any or all of these additional funds.

So in summary, physician recognition of the clear benefits of OMIDRIA and their desire to access the product on behalf of their patients has never been stronger. Our financial position is solid, and we can access additional capital at our discretion. We expect that the uncertainty regarding CMS reimbursement for OMIDRIA will be resolved soon and then utilization will quickly ramp up again. We remain confident that OMIDRIA in 2018 will continue to help fuel our pipeline.

Let's turn now to that pipeline starting with our franchise of complement inhibitors, which includes our MASP-2 program, OMS721, and our MASP-3 program, OMS906. OMS721, our lead MASP-2 antibody targets the lectin pathway of the complement system, a key component of the immune response. We have 3 Phase III clinical programs underway with OMS721, in immunoglobulin A or IgA nephropathy, in hematopoietic stem cell transplant-associated thrombotic microangiopathy, or stem cell TMA, and in atypical hemolytic uremic syndrome or aHUS. We also have 2 ongoing OMS721 Phase II clinical trials, 1 in stem cell TMA, and the other in renal diseases, each of which has continued to generate positive data.

OMS721 is the first and only drug to receive FDA's breakthrough therapy designation in IgA nephropathy. In our OMS721 Phase III program in patients with IgA nephropathy, we have reached concurrence with FDA on the study design for a single Phase III clinical trial that could lead to full approval based on proteinuria. To our knowledge, OMS721 is the first and only drug for which FDA has agreed that full approval could be granted on reduction in proteinuria alone. As a fallback, the Phase III trial also includes the path to accelerated approval. Specifically, the single Phase III trial design is a randomized double-blind, placebo-controlled multicenter trial in patients at least 18 years of age with biopsy-confirmed IgA nephropathy and with 24 hour urine protein excretion greater than 1 gram per day at baseline on optimized renin-angiotensin system or RAS blockade. Initially, patients receive an IV dose of study drug each week for 12 weeks. Additional weekly dosing can be administered for partial responders or for patients who relapse. The primary endpoint which, as I mentioned, could suffice for full approval depending on the size of effect is reduction in proteinuria 24 weeks after the start of dosing. The trial is structured to employ an adaptive design that will allow intratrial adjustment in sample size without spending alpha. In other words, without affecting the P value level required for statistical significance. For purposes of safety and efficacy assessments, the initial sample size for the proteinuria endpoint is estimated at 140 patients in each of the treatment and placebo groups.

This will include a subset of patients with high levels of proteinuria, defined as equal to or greater than 2 grams per day of baseline and a substantial improvement at 24 weeks in this high-protein subset of patients alone could itself form the basis for full approval.

So there are 4 ways to achieve a positive outcome in this Phase III trial. One, full approval based on proteinuria 24 weeks across the general population of study patients. Two, full approval based on proteinuria 24 weeks in the high proteinuria subset of patients. Three, accelerated approval in the general population, again, based on 24-week proteinuria data. And, four, accelerated approval in the high proteinuria subset based on 24-week proteinuria data.

In the event of accelerated approval in either patient group, OMS721 could be made commercially available for the treatment of IgA nephropathy patients. While on the market, we would continue pursuing full approval that would likely require a satisfactory change in estimated glomerular filtration rate on eGFR, a measure of renal function.

Patient enrollment is underway in this Phase III IgA clinical trial and additional clinical trial sites are being added in the U.S. and internationally.

Because FDA indicated that OMS721 could receive full approval on proteinuria alone at 24 weeks, we also are planning to initiate a second OMS721 Phase III clinical trial focused solely on IgA patients with high proteinuria. This trial would require significantly fewer patients than our trial in the IgA general patient population, would include biopsy data to assess the disease-modifying potential of OMS721, would likely enroll even more quickly than our broader study and would provide a third option to achieve full approval on 24-week proteinuria data alone. In addition, the trial could provide an even faster path to market in this indication and we believe that we're the only company to which FDA has provided these options.

In the U.S. and Hong Kong, a Phase II placebo-controlled trial is underway evaluating OMS721 in IgA nephropathy patients, not taking steroids. The trial includes 12 weeks of dosing and extended open label follow-up with the option for retreatment if needed. Data from the double-blind portion of the U.S. cohort are expected midyear.

As we previously reported, we are also planning a study in patients with low baseline eGFR. We have reason to believe that OMS721 would be effective in this population, that is rapidly approaching end-stage renal disease and dialysis.

In addition to breakthrough therapy designation, OMS721 has received orphan drug designation from FDA for IgA nephropathy, and just this week EMA confirmed orphan drug designation for OMS721 in the same indication.

We are also pursuing priority medicines or PRIME designation from EMA for OMS721 in IgA nephropathy. Unlike FDA's breakthrough therapy program, which can shorten our time line to obtain accelerated approval in the U.S., EMA's newer PRIME program does not affect the time line for our planned pursuit of conditional approval in the EU.

A primary advantage in pursuing PRIME is to receive incremental fee incentive, given that most of the fee incentives afforded by PRIME we already received through EMA's orphan designation for OMS721 in IgA.

Our Phase II program evaluating OMS721 in patients with stem cell transplant-associated TMA has also generated exciting progress. To date, a total of 19 stem cell TMA patients have been treated with OMS721, 18 in the ongoing study and 1 patient under a compassionate use protocol.

In February, we reported additional data on these patients with stem cell TMA demonstrating an increase in estimated median overall survival in patients treated with OMS721 compared to a best matched historical control. Specifically, estimated median overall survival in the OMS721 treated patients was 347 days versus 21 days for the best-match control group using a Kaplan-Meier analysis. The P value was less than 0.0001 by log-rank test. To put it simply, the OMS721 treated group demonstrated greater than a 16-fold improvement in estimated overall median survival.

Not previously discussed publicly, we also saw a significant improvement in transfusion requirements in these stem cell TMA patients treated with OMS721. 8 of the 19 patients were receiving significant red blood cell and platelet transfusions at the time of study entry. The transfusions for these patients were either stopped completely or markedly reduced in 7 of the 8 patients. The eighth patient had ongoing acute myeloid leukemia, a malignancy of bone marrow characterized by severe red blood cell anemia and low production of platelets. And this patient received only 2 doses of OMS721, discontinued the study and died shortly thereafter.

In addition, updated assessments of platelet count, lactate dehydrogenase or LDH and haptoglobin, all markers of TMA activity, continued to demonstrate clinically meaningful and statistically significant improvements in the stem cell TMA patients treated with OMS721.

As previously reported, 1 patient who did not tolerate eculizumab treatment experienced resolution of TMA and diffuse alveolar hemorrhage following initiation of OMS721 treatment. She was able to discontinue oxygen and respiratory support, discontinue hemodialysis and discontinue platelet transfusions. At last report, she was home and doing well. Another patient with a history of steroid-refractory graft-versus-host disease or GVHD presented to the study with coexisting TMA, GVHD and multiple neurological abnormalities. Following OMS721 treatment, his TMA and GVHD resolved and his neurological function improved markedly, removing him from the bedridden state and returning him to part-time work. These results with OMS721 are consistent with the emerging view in the stem cell transplant community that many different stem cell transplant complications are driven by endothelial cell injury, exactly the type of injury that OMS721 targets. These so-called endothelial injury syndromes include TMA, GVHD, veno-occlusive disease and diffuse alveolar hemorrhage.

So anyway that you assess the results of OMS721 in stem cell TMA, whether by median overall survival, across relevant biomarkers, by transfusion requirements or by patient clinical course, the data are consistent and compelling. And we look forward to discussing them with regulatory authorities both in the U.S. and in Europe.

As in every OMS721 clinical trial to date, the drug has been well-tolerated in the TMA Phase II trial with no safety concerns identified. Four deaths occurred during the study, 1 due to progression of acute myeloid leukemia, 2 due to neutropenic sepsis, and 1 due to acute renal and respiratory failure. 3 of these deaths were deemed not to be related to OMS721 and only 1 of these deaths, the acute renal and respiratory failure, which is a common complication of hematopoietic stem cell transplants, was considered possibly drug-related because an association could not be definitively ruled out by the investigator.

At FDA's request, we recently submitted a full application to FDA for breakthrough therapy designation for OMS721 in stem cell TMA. We are scheduled to meet with FDA to discuss the most expeditious pathway to approval, including the possibility of accelerated approval for OMS721 in this indication.

We also are requesting meetings with regulatory authorities within the EU to discuss the pathway forward to approval, including conditional approval in Europe. We are exploring our options in other major markets as well. Our Phase III aHUS program is enrolling and targeting approximately 40 patients internationally. The Phase III clinical program consists of an open label clinical trial with only a single arm. In other words, no control arm.

OMS721 treatment consists of a simple 2-dose intravenous loading regimen in the first week together with weekly subcutaneous dosing. Our primary endpoint will be assessed at 26 weeks. Our 40-patient target enrollment could provide full approval in Europe and satisfy requirements for accelerated approval in the U.S., with another 40 patients required for FDA's full approval.

Today, we've received orphan drug designation from the FDA for TMAs broadly, including aHUS, and have also been granted FDA's Fast Track designation for the treatment of patients with aHUS.

Our MASP-2 program also includes small molecule MASP-2 inhibitors for oral administration. Using a variety of tools, including cocrystallization, we have generated a number of highly potent and selective molecules. Our medicinal chemists are optimizing them as we advance to the clinic.

Our complement franchise also includes OMS906, an antibody targeting MASP-3. Omeros was the first to identify MASP-3 as the key activator of the complement system's alternative pathway. Any clinical indication linked to the alternative pathway should be fair gain for our MASP-3 inhibitors. Omeros continues to make good progress in the MASP-3 antibody program with manufacturing scaleup underway for our lead product candidate. Antibody expression has been robust and we expect to achieve high concentration formulations that will be readily and comfortably delivered subcutaneously. We plan to enter the clinic in late 2019 or early 2020 and are currently targeting paroxysmal nocturnal hemoglobinuria, or PNH, as our initial indication.

As with our MASP-2 program, our OMS906 or MASP-3 program includes small molecule inhibitors and these 2 are progressing rapidly.

I'd like to briefly provide now a few highlights on some of our other pipeline programs before we move on to financial results.

First, let's turn to our programs in the field of addiction and compulsive disorders where we believe Omeros, again, will play a major role. OMS527 is our lead phosphodiesterase 7 or PDE7 inhibitor. Omeros exclusively controls the use of any PDE7 inhibitor for the treatment of any addiction or compulsive disorder. PDE7 inhibitors work through the dopamine system, which is known to be central to addiction. Our OMS527 program has generated consistently positive results in animal models of cocaine, alcohol, nicotine and opioid addiction as well as in binge eating. In addition to decreasing craving, OMS527 inhibits both cue and stress-induced relapse but does not depress the reward system, a problem that seriously hinders the use of currently approved anti-addiction agents. Should the animal data translate in humans, OMS527 could be the first drug to treat all forms of addiction. Our OMS527 program remains on track to initiate our Phase I clinical trial by midyear. We expect that we will initially target nicotine addiction for which there remains a substantial unmet need.

In addition to our PDE7 inhibitor, our OMS405 program focused on PPAR-gamma agonist has also generated positive data. The data from our Phase II clinical trial in cocaine use disorder conducted by independent investigators have been published in the Journal of Addiction, while the data from our Phase II nicotine study have been published in the Journal of Pharmacology, Biochemistry and Behavior. In addition, a manuscript with the data from a Phase II heroin study has been submitted for publication in a peer-reviewed journal.

Work continues for our phosphodiesterase 10 or PDE10 inhibitor program OMS824 as well. An analysis of data is in progress that will inform species specific differences and the findings that we have limited resulting clinical dose. The results of this analysis may be discussed with FDA to allow resumption of the clinical development program without dosing limitation.

We'll wrap up our pipeline discussion now with our GPCR program. Omeros believes that it exclusively controls 54 GPCRs, with broad ranging indications, including cancer, metabolism, cardiovascular disease and central nervous system disorders. As previously noted, we have expanded our medicinal chemistry capabilities and are accelerating our progress on compound optimization. These compounds are generating positive in vivo data across a number of targets, including GPR161 for triple-negative breast cancer and sarcomas, and GPR174 for immuno-oncology. Treating human peripheral blood mononuclear cells with small molecule GPR174 inhibitors resulted in increased levels of the cytokines interleukin 2, interleukin 10, interferon gamma and tumor necrosis factor alpha and decreased levels of the checkpoint proteins cytotoxic T-lymphocyte-associated protein 4 or CTLA-4, and programmed death ligand 1 or PD-L1. It also reduced the number of the regulatory T cells and the levels of the tumor promoting factor amphiregulin. So inhibiting GPR174 appears to stimulate the immune system, while at the same time constraining its suppressive pathways, all critical functions for cancer treatment.

To our knowledge, GPR174 and no other target singly affects this constellation of cancer-related functions. And no entity other than Omeros has GPR174 inhibitors. We continue to build the broad intellectual property estate around this and our other GPCR targets.

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

Thanks, Greg. As Greg noted, revenues for the fourth quarter were $13.8 million, all from OMIDRIA product sales; and our net loss was $16.6 million or $0.34 per share. This includes noncash expenses of $4.5 million or $0.09 per share.

On an overall basis during the fourth quarter, we continue to advance towards cash flow breakeven with our overall decrease in cash and cash equivalents being only $3.1 million.

Here are some specifics regarding the fourth quarter results as compared to the third quarter. Our reported revenue for the fourth quarter was $13.8 million, a decrease of $7.9 million from the third quarter, while the unit sales of OMIDRIA by our wholesalers to ASCs and hospitals, or sell-through remained constant from the third quarter even considering the uncertainties surrounding pass-through. In fact, prior to December, our daily sell-through volume was approximately 18% above what we achieved during the third quarter. The large difference between reported revenue and sell-through was attributed to a couple of key factors. Under our accounting policy, we are unable to recognize revenue on wholesaler inventory in excess of 8 weeks of projected ASC and hospital demand. With the substantial majority of our customers currently waiting for resolution regarding reimbursement and only using OMIDRIA on a very selective basis, sell-through volume since January 1 has substantially declined from peak sales in November. Consequently, we did not recognize revenue in the fourth quarter for nearly all the December shipments to our wholesalers. This inventory will be recognized as revenue in the future to the extent that ASC and hospital demand is reestablished.

The second item is the returns we are accepting in support of our ASC and hospital customers. We recorded a return reserve of $2.4 million for product in the possession of the ASCs and hospitals at December 31, that we anticipate will be returned in 2018. This inventory will also get replaced to the extent that ASC and hospital usage increases and would positively impact future revenues.

Cost and expenses for the fourth quarter were $27.9 million, a $1.1 million increase from the third quarter. The increase was primarily due to manufacturing scaleup activities for OMS721 and higher third-party development costs incurred on OMS721 and our other product candidates. Interest expense was $2.9 million for the current quarter, which is in line with our expectations.

As of December 31, 2017, we had $83.7 million of cash, cash equivalents and short-term investments available for general operations. We also had $17.1 million of accounts receivable that we have already collected during this first quarter. And we had $5.8 million of restricted cash in support of our CRG loan agreement and our building lease.

As you may recall, under our secured debt facility with CRG, we have borrowed $80 million and had $45 million available at our sole discretion and subject only to customary closing conditions through the end of February. This week, we agreed with CRG that we can now borrow all or any portion of the $45 million through May 20 of this year at our sole discretion and, again, subject only to the customary closing conditions.

Now let's take a look ahead.

Our 2018 revenues will depend on the status of CMS reimbursement for OMIDRIA. As Greg discussed earlier, we're actively pursuing continued separate payment for OMIDRIA. In the event we conclude at some point not to continue pursuing separate payment, we will implement an alternative selling strategy. Should we pursue an alternative strategy, we cannot predict how quickly unit sales might grow and what the overall revenues would be until we have some sales history.

During 2018, the majority of our research and development expenses will be related to OMS721. We expect OMS721 cost to continue to increase in 2018 given our ongoing Phase III clinical programs and our commercial manufacturing efforts.

Selling, general and administrative expenses for 2018 may increase slightly from 2017, primarily due to premarketing activities associated with OMS721. The actual expense is also dependent on the timing of costs associated with the Lupin and Sandoz lawsuits versus the amount we spent in 2017 litigating the Par lawsuit.

Interest expense would be dependent on whether we borrow any portion of the additional $45 million from CRG. Should we borrow the full $45 million, our quarterly interest expense for subsequent quarters would increase by approximately $1.7 million per quarter.

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

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

(Operator Instructions) And our first question comes from the line of Steve Brozak from WBB.

Thanks for the detailed itemization of everything going around OMIDRIA. Greg, I'm looking at this, and obviously, there have been a lot of critics, and I'm reminded of how critics had started by saying that OMIDRIA couldn't get out of the clinic, then it couldn't get regulatory approval, then it wouldn't get reimbursement, and then you wouldn't see a ramp-up in sales. Now obviously there is a lot of criticisms saying, what's the solution here? And everything you've talked about is providing that you've got a flexibility on what you decide to do into the future. But what I would like to really know about is that flexibility is predicated on 2 things: Patient-physician demand, and the benefit for OMIDRIA. What can you tell us about that? And what can you tell us about why you're comfortable with that -- with what the options are for you? And the next question after that will be on OMS721, please.

All right. Well, thanks, Steve. Let me address something you've said at the outset, which is that we have had critics on OMIDRIA sort of early on in the process and that has continued. You are correct about that. You recall that many told us that we should jettison OMIDRIA because it was a drag on the overall development programs in the company and that we would not see sufficient revenue. It's interesting that now the discussion is somehow around reimbursement from CMS and the effect just on those revenues, which have largely been funding our operations. So let me specifically respond to your question, which is gee, what are the clinical benefits? Why do we think that's important? And why are we comfortable pursuing the options that we're pursuing? Look, the clinical benefits around OMIDRIA have been demonstrated time and time again in multiple publications, multiple studies by multiple different investigators. Those benefits are very clear. To reduce complication rates; it's reduced use of pupil expansion devices; it is faster surgical time; it is better outcomes for patients; and, frankly, it provides better safety for patients than anything that could even be thought of being used as an alternative. The physician response around OMIDRIA -- this hiatus or reduction in sales has really demonstrated, frankly, the level of support by physicians and their demand for the product on behalf of their patients. The letters that have come to us, the letters that have gone to Congressional members, the letters that have gone to CMS, the latter two obviously we haven't seen but understand those have been sent, all of that really points very clearly to a high level of demand from the physicians for the product.

Our level of comfort with the path that we are pursuing is, again, quite clear. I think I've said and stated pretty clearly that the 3- to 5-year pass-through extension legislation has bipartisan, bicameral support in Congress. So both chambers, House and Senate. And, in fact, as I mentioned, I think in the opening comments but for some procedural issues, frankly, we expect that that would have been included in the continuing resolution that was passed in February. But clearly the discussions continue in earnest around that piece of legislation. And the reason those discussions are continuing is because, frankly, it's good policy. It's good for patients, it's good for physicians and the cost is already available, included within the pass-through program. So we think at this point, the right thing to do for patients, as I said, the right thing to do for physicians and, frankly, in our case, specifically, the right thing to do for our shareholders is to play that game out. I expect we will be successful. Again, one can never guarantee and we've made no guarantees with respect to that. But certainly, I think, that it's, again, the right thing to do, and I think, we have the opportunity to pursue it now and we should. The other option is a direct fix by CMS. We're in discussions with CMS. I think, again, this is something that CMS rightfully should fix. We'll see what happens with those discussions as well. The third alternative is really a different strategy to try to provide this product to physicians for use on their patients during cataract surgery. And at this point, I don't think it really would make sense for us to flip to that option.

All right. It's obviously a well-thought-out strategy, but the only reason it can work is because of that demand. So that's answering that question. Now the OMS721 is obviously what everyone else is focused on. And given your experience, everything that you went through with OMIDRIA and its approval, what can you tell us in terms of similarities, differences and what are the advantages that you've got in terms of the development of OMS721 into the future? And I will hop back on the line because I obviously don't want to hog the questions.

Sure. Thanks, again. Look, we have 3 Phase III programs running in OMS721: aHUS, IgA nephropathy and now stem cell-associated TMA. We began with the aHUS program. I think we've been pretty clear that we expect both IgA and stem cell TMA to leapfrog aHUS in the development process. Based on our data with stem cell TMA, I think there is actually a reasonable possibility that stem cell could in fact also leapfrog IgA. We've been pretty clear about the data that we put out. We are very excited about the data that we have put out on stem cell TMA, whether you look at the median overall survival data, whether you look at the transfusion data, whether you look at the biomarker data, whether you look at the patients' clinical course, what you see, I think, is based on those studies, clear evidence that support our contention that OMS721 is having a positive effect and, frankly, it's saving lives. Our intention there is to discuss the next steps with both FDA and EMA. Certainly part of each of those sets of discussions would be directed to accelerated approval in the setting of the FDA, and conditional approval in the setting of EMA. So what differentiates us, I think, is pretty clear. There is no treatment for stem cell TMA, just as there is no approved treatment for IgA nephropathy. We think clearly now turning to IgA if you look at our data there and if you look at the response from regulators, again, first drug to receive breakthrough therapy designation for IgA nephropathy. We believe the first drug to be offered full approval based on proteinuria alone. I mean, I think those things pretty much speak for themselves as how we believe we differentiate. So let me stop there and make sure that I have answered your question.

No, you've covered it perfectly. Look, we all look forward to what the resolution is going to be and your announcement. So let me hop back in the queue.

(Operator Instructions) And at this time, I'm showing no further questions. I'd like to turn the call over to -- back to -- over to Dr. Demopulos for any closing remarks.

All right. Thank you very much. Well, that wraps up our call for today. Thanks, again, everyone, for joining us on the call. As always, we appreciate your continued interest and support. Have a good evening, everyone.

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