Omeros Corp (OMER) 2018 Q3 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 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 quarterly report on Form 10-Q, which was filed today with the SEC for a discussion of these risks and uncertainties.

Dr. Greg Demopulos, Chairman and CEO of Omeros, will take you through a corporate update; and then Mike Jacobsen, our Chief Accounting Officer, will provide an overview of the Company’s third 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 morning, everyone. We appreciate all of you taking the time to join us today. I'd like to first update all of you on our recently announced convertible debt deal. Under this debt deal, we will receive gross proceeds of $210 million in exchange for wholly unsecured convertible notes.

The initial purchasers will have a 30-day option to purchase $40 million of additional notes. The deal was spurred by a reverse inquiry. We're pleased with the quality of the purchasers and appreciate their confidence in the company.

We have introduced to our story new blue chip, highest quality credit and equity crossover investors from both the U.S. and Europe. The proceeds will be used primarily to retire our secured debt facility with CRG, and to provide additional working capital, while OMIDRIA revenues continue to ramp up to sufficient levels to support fully our research and development and other operating costs.

We believe that this is a good move for the company and that the timing is right. Here's why.

As unsecured debt, the company now has removed all covenants as well as all security interests, including all pledges against our intellectual property and has greater freedom to run our operations.

It reduces our interest rate to nearly half from 12.25% to 6.25%, and meaningfully extends our maturity date to late 2023.

The structure of this debt allows us to control at our sole discretion how the conversion or repayment is fulfilled.

We purchased a call spread, which effectively raises the conversion price to approximately $29.

Our overall objective is to minimize or avoid dilution, so we plan to repay this debt in cash. This convertible debt transaction is scheduled to close next Thursday.

Now let's turn to our commercial product, OMIDRIA. As previously announced, pass-through reimbursement status for OMIDRIA initially expired on December 31, 2017.

Underpass through the product is paid separately, meaning outside of the packaged facility fee by the Centers for Medicare and Medicaid Services or CMS. As many of you know, Congress stepped in and in March of this year, reinstated pass-through for OMIDRIA effective on the first of last month, and by law, it extends until October 1, 2020. After that, based on CMS's recently released 2019 rule for its outpatient prospective payment system or OPPS, we expect that OMIDRIA will continue to receive separate payment.

This means that the recently completed third quarter was the final quarter of the hiatus and separate payment for OMIDRIA.

Third quarter net sales for OMIDRIA were $4.6 million. This represents an increase of $3 million over second quarter revenues.

Net loss for the quarter was $39.5 million or $0.81 per share, which includes noncash expenses of $5 million or $0.10 per share.

It also includes $2.3 million that we expensed for the purchase of certain raw materials to be used in the manufacture of OMS721 over approximately the next 2 years.

So what are we seeing in the early days of pass-through reinstatement? While still early in the fourth quarter, the data indicate that we're quickly approaching OMIDRIA sales levels from late last year.

During October, the first month of pass-through reinstatement, sell-through or the amount of product purchased from our wholesalers by hospitals and ambulatory surgery centers, or ASCs, was approximately 17,500 vials. This represents 81% of the sell-through amount for October 2017, which was our highest single month of OMIDRIA sell-through to date.

Across the board, the metrics that we are tracking to assess the reintroduction of OMIDRIA underscore our success.

Sell-in or the number of vials purchased by the wholesalers, the number of hospitals in ASCs purchasing OMIDRIA and the number of vials per order all point to a rapidly expanding reuptake of OMIDRIA following reinstatement of pass-through.

In fact, the number of hospitals ordering the drug has already returned to last year's levels.

The large majority of ASCs previously participating in our volume discount program, including those that perform the highest number of cataract surgery procedures, have returned to the program and are ordering product. And a substantial and growing number of new facilities are also enrolling.

Sales in the veterans health administration system, now that OMIDRIA has been added to the VA National Formulary, are higher than ever before and growing. This means that a progressively increasing number of ophthalmology residents are being introduced to the benefits of OMIDRIA, and are likely to continue using the product when they graduate from training and begin their own practices.

In addition, we are focusing on chains of ASCs and hospital surgical facilities, and those efforts are also yielding results. One example is Community Health Systems or CHS. CHS is one of the leading operators of general acute care hospitals with 115 facilities nationwide.

OMIDRIA was recently added to CHS's national formulary. While still determining the full extent of this opportunity, we expect that CHS represents approximately 30,000 or more cataract surgery procedures annually.

Our payer team has also expanded its success. In addition to CMS paying separately for OMIDRIA whenever it is used for Medicare Part B beneficiaries, we now have verbal and written commitments to follow CMS's separate payment for OMIDRIA from payers who represent approximately 50% of Medicare Part C or Med Advantage. Beneficiaries in approximately 60% of commercial lives.

The distillate of all of these numbers is that we have reimbursement committed for approximately 75% of all cataract surgery patients nationwide, and we expect that percentage to continue to grow over the next few quarters. So now an increasing number of Med Advantage and commercial payers are reimbursing like CMS for the use of OMIDRIA.

CMS reimburses pass-through drugs at average selling price or ASC -- ASP, plus 6%.

As part of the legislation reinstating pass-through for OMIDRIA, Congress, to address the volatility and utilization during the 3-quarter pass-through hiatus, also mandated that ASP for OMIDRIA be held fixed at its Q4 2017 ASP until the second quarter of 2019.

This means that payment for OMIDRIA will remain at $466 through Q1 2019. After that, ASP and the derived CMS payment amount will be calculated in the usual manner.

The rapid reuptake of OMIDRIA has been helped by our OMIDRIA sure patient assistance program, including our equal access and we pay the different services. In addition, our 340B discount pricing program provides the benefits of OMIDRIA to low-income patients undergoing cataract surgery. And customer response for the continuation of all of these programs has been uniformly positive.

The number of publications on the substantial benefits of OMIDRIA continues to grow.

In 2018 alone, the results of 3 additional investigator-initiated trials have been published with 2 or more manuscripts submitted to journals, one of which has already been accepted for publication by the Journal of Cataract and Refractive surgery. The manuscripts show that compared to epinephrine in both conventional and femtosecond laser-assisted cataract surgery, OMIDRIA decreases the need for pupil expansion devices and shortens surgical times, increasing the efficiency and reducing the costs of cataract surgery. One recently published investigator-initiated randomized double-masked study demonstrates that OMIDRIA prevents intraoperative floppy iris syndrome or IFIS. Also and importantly, the cataract surgery subcommittee of the American Society of Cataract and Refractive Surgery or ASCRS recently published in the Journal of Cataract & Refractive Surgery a white paper on medical and surgical management of small pupils during cataract surgery. The publication is essentially a set of practice guidelines for surgeons and details the clinical and real-world experience with OMIDRIA. Two additional and separate investigator-initiated studies have found that OMIDRIA can preclude the need for postoperative steroid drops.

We expect that the results of these studies will be submitted for publication and could have a meaningful effect on further broadening both utilization and reimbursement.

Last Friday, CMS issued its 2019 final rule for the Outpatient Prospective Payment System or OPPS.

We're pleased with the outcome. First, it confirms and outlines implementation for the return of OMIDRIA to pass-through status. The rule also lays out the framework for long-term separate payment for some nonopioid pain management drugs and we believe that OMIDRIA fits squarely within the 4 corners of that framework.

Specifically, the rule finalizes the proposal to pay separately at ASP plus 6% for nonopioid pain management drugs that function as a supply when used in a covered surgical procedure performed in an ASC.

OMIDRIA was not explicitly named. The policy applies only to drugs that meet the criteria and are packaged for calendar year 2019. OMIDRIA is not packaged. Instead, it is currently separately paid under pass-through.

The policy's preamble indicates that CMS will apply the exclusion to other drugs in the future if they meet the criteria.

We believe that OMIDRIA, which is a nonopioid with both an FDA approved indication for postoperative pain reduction, and peer-reviewed journal articles demonstrating it's evidence-based reduction in opioid use, clearly meets the policy's criteria and that once the current pass-through status for OMIDRIA expires, it will continue to be paid separately.

In the meantime, we continue our discussions with CMS. In addition, CMS data and the 2019 OPPS final rule that it will consider for future rulemaking a policy to pay separately for drugs that are administered at the time of cataract surgery, but are not integral or necessary to the cataract procedure and have an FDA-approved indication to treat or prevent postoperative issues.

Here again, OMIDRIA absolutely satisfies these criteria. We believe that all of this distills down to the following. OMIDRIA, other than the fact that it is currently separately paid as a result of its legislatively awarded pass-through extension, already meets the requirements for the non-opioid exclusion. And once its pass-through period has expired, will continue to be separately paid. Should CMS in the future follow through on the policy to pay separately for cataract surgery drugs with postoperative benefits specifically, OMIDRIA would qualify for separate payment in not one, but 2 ways.

Now let's turn to our pipeline behind OMIDRIA. We continue to advance our programs for OMS721, which inhibits mannan-binding lectin associated serine protease 2 or MASP-2, the effector enzyme of the lectin pathway. The lectin pathway is part of the complement system, a key component of the immune response. We are driving each of our 3 Phase III programs for OMS721 in hematopoietic stem cell transplant-associated thrombotic microangiopathy or stem cell TMA, immunoglobulin NLA or IgA nephropathy and atypical hemolytic uremic syndrome or aHUS.

In our stem cell TMA program, OMS721 has received breakthrough therapy designation from FDA for OMS721 and the treatment of stem cell transplant patients with high-risk TMA, or those who have persistent TMA despite modification of immunosuppressive therapy.

OMS721 has also received FDA orphan drug designation for the prevention of TMA and last month received FDA orphan drug designation for the treatment of stem cell TMA. So now OMS721 has orphan drug designation for both the prevention and treatment of stem cell TMA. Earlier this year, OMS721 also received from the European Medicines Agency or EMA orphan drug designation for treatment in hematopoietic stem cell transplantation.

As previously disclosed, both 100-day survival and overall survival for stem cell TMA patients treated with OMS721 were markedly and statistically significantly superior to a matched literature-based historical control. Improvement on overall survival was an order of magnitude greater for OMS721-treated patients, and there was a greater than fivefold improvements, 53% versus 10% on survival at 100 days following TMA diagnosis. Fee values for these 2 outcomes were less than 0.001 and 0.002 respectively.

We're working closely with FDA and European national regulatory authorities to discuss the most efficient and expeditious approval pathways for OMS721 for the treatment of stem cell TMA. With both U.S. and European regulators, we are discussing details of a marketing approval plan based on data from all PMA patients treated to date with OMS721 and any additional ones who might be treated prior to database lock together with a matched historical control population derived from a retrospective chart review.

We have now met, most recently this week, with multiple European national regulatory authorities and all have uniformly recommended that we submit not for conditional, but instead for full approval for OMS721 in stem cell TMA. We next plan to request a centralized advice meeting with the European Medicine Agency's committee for human medicinal products or CHMP. We have already applied for eligibility to EMA's centralized review procedure, which allows submission of a single marketing authorization application or MAA, that if approved authorizes the product to be marketed in all EU member states and European free trade Association countries rather than requiring separate national approvals.

We have also provided EMA with our letter of intent to submit an MAA and look forward to receiving assignments of our rapporteur and co-rapporteur. These are members of CHMP who will work with us through the MAA submission as well as the review process for OMS721 and stem cell TMA.

We're finalizing the data collection plan for the chart review based historical control, after which we will begin data collection. We'll continue to work closely with both FDA and European regulatory agencies, as we progress in our preparations for submission of a biologics license application or BLA into U.S. and an MAA in Europe. We are on track to complete the writing of the nonclinical sections of the applications by the end of the year.

Let's turn next to our OMS721 program in patients with IgA nephropathy. This program also has received FDA breakthrough therapy designation in both U.S. and European orphan drug designations. The Phase III clinical trial called Artemis IgAN continues to enroll. 2 patient populations will be evaluated in the trial. One is the overall set of patients with baseline proteinuria levels in excess of 1 gram per day on optimized renin-angiotensin system or RAS blockade. And the second is the subset of patients who are at high risk for rapid disease progression with baseline proteinuria levels of 2 or more grams per day, again, despite optimized RAS blockade.

None of the patients are taking steroids at the time of enrollment. The trial has been designed to include pathways for both accelerated and full approvals depending on the magnitude and duration of the effect on OMS721 on proteinuria, which is the trial's primary endpoint.

Our Phase II trial evaluating OMS721 in glomerulonephropathies, including IgA nephropathy, is also ongoing. Last year, we reported results for a first cohort of IgA nephropathy patients who were on steroids at the time of enrollment. Patients in this cohort demonstrated marked improvement in proteinuria after just one 12-week course of treatment with OMS721. All patients also were able to eliminate their corticosteroid dosing by the end of the OMS721 treatment or shortly thereafter.

Last month, we reported additional positive results for a second cohort of IgA nephropathy patients in the ongoing Phase II clinical trial. Unlike the previously reported cohort of 4 patients who were taking corticosteroids at the time of study and enrollment, patients in the second cohort are not taking steroids.

The cohort included 12 patients, 9 of whom had a valuable data. Initially, patients were treated with 12 weekly doses of either OMS721 or placebo and then were followed for 6 weeks with no treatment. After week 18, all patients, those initially treated with placebo and those initially treated with OMS721, were able to receive additional 12-week courses of OMS721 at investigator discretion.

We conducted an interim database lock after all patients in the second cohort had reached the 18-week mark. At week 18, median reduction in proteinuria was 18.4% in the 5 OMS721 treated patients, and 18% in the 4 placebo patients.

During the follow-up period, median reduction from baseline in proteinuria was 56% for the 8 patients who were in the study for at least 18 weeks, and was 61% for the 4 patients who were in the study for over 9 months.

All 8 patients in the greater than 18-week follow-up period received at least one 12-week course of treatment with OMS721, and 5 of the 8 had received only one course of OMS721 treatment at the time of data release. As in the first cohort, a legacy effect was seen with maintenance of proteinuria reduction extending for months following cessation of treatment.

Let's first be clear about the outcome of the second cohort. As characterized by experts in IgA nephropathy, the data are strongly positive and supportive of a disease-modifying effect and increase the probability of technical success in the Phase III clinical trial, Artemis IgAN. With respect to the 18-week data, reliable efficacy conclusions cannot be drawn.

With only 6 patients in each arm, the cohort was not powered nor was there ever any intention to conduct a comparison between OMS721 and placebo. The cohort's objective was to assess safety and to provide longer-term observation with the options of repeat dosing. And the analysis were prespecified as descriptive only. For these reasons, the study did not include a run-in period for optimization of RAS blockade prior to study drug treatment.

In many studies where a placebo comparison is to be made, a run-in period is included. Specifically, in IGA studies, a run-in period is designed to allow optimization of RAS blockade and improved patient compliance. The 18% median reduction in proteinuria seen in this cohorts placebo group at 18 weeks is in fact similar to or less than that seen during the run-in period of other IgAN studies. For example, the stop IgAN trial. The meat of this cohort's data is in the longer term assessments. These demonstrate substantial improvement in the OMS721 treated patients similar in magnitude to those seen in the first cohort, specifically, greater than 50% to approximately 70% reductions in proteinuria from baseline. International experts in IgA nephropathy confirm that the responses seen in both the first and second cohorts are unprecedented, and would not be seen in the natural course of the disease. Meaning that the reductions in proteinuria are believed to be an OMS721 drug effect.

The strength of the recent data is even further underscored by the fact that compared to the patients in the first cohort, patients in the second cohort were steroid free, had significantly more established disease as determined by date of diagnosis, and had multiple comorbidities.

In short, the second cohort patients appeared meaningfully sicker, and had more advanced renal disease than those in the first cohort. And yet the response to OMS721 treatment was consistent across both cohorts.

Omeros, in collaboration with international experts in IgA nephropathy, is preparing a manuscript detailing the results from the second cohort and including the findings in the first cohort. A webcast presentation and/or an Analyst Day are also under consideration. As I said previously, our Artemis IgAN Phase III trial continues to enroll.

We have established an academic leadership committee for our Phase III program that consists of 7 world leading experts in the field.

To the best of our knowledge, OMS721 is the only drug in development for IgA nephropathy that can obtain full approval on proteinuria alone. While there are no certainties in life, we look forward to a positive outcome.

Our OMS721 Phase III program assessing the drug in aHUS patients continues enrollment in a single arm open-label clinical trial. For aHUS OMS72 hold both orphan drug and Fast Track Designation. Our Phase III aHUS trial is targeting approximately 40 patients for both full approval in Europe and accelerated approval in the U.S., with approximately 80 patients required by FDA for full approval. Dosing of OMS721 in this trial is subcutaneous with an intravenous loading regimen. Again, across all clinical trials ongoing and completed OMS721 continues to be well-tolerated with no safety concerns identified.

In addition to making significant progress in our OMS721 clinical programs, we continue rapidly advancing our development of small molecule MASP-2 inhibitors. With multiple families of highly potent, highly selective compounds, we remain on track to enter clinical trials for orally administered MASP-2 inhibitors in 2020. The potential advantages of small molecules over antibodies are obvious, and the absence of any marketed small molecule therapeutics in the complement space represents a glaring opportunity for our small molecule MASP-2 inhibitors.

Let's next turn to OMS527, our phosphodiesterase 7 or PD-7 inhibitor program for addiction in compulsive disorders. A Phase I single ascending and multiple ascending dose clinical trial is underway and is designed to assess safety and pharmacokinetics of the drug in healthy subjects. We've completed dosing all 6 cohorts in the single ascending dose portion of the trial, including a cohort to assess whether pharmacokinetics is affected by food. The compound to date has been well tolerated, and pharmacokinetic data indicate that it should be able to be dosed once daily with or without food. The next cohort will be the first in the multiple ascending dose portion of the study. Completion of the Phase I trial is expected in the first half of 2019. Assuming successful completion of Phase I, we plan initially to target nicotine addiction in this program.

Now let's discuss the other half of our complement franchise, our MASP-3 inhibitor or OMS906. MASP-3 is thought to be the key activator of the complement systems' alternative pathway. MASP-3 is responsible for the conversion of pro-factor D to factor D and systemic administration of our MASP-3 antibody is capable of achieving a long duration of alternative pathway inhibition. Given the fact that active factor D enters compartments such as the eye via the circulation, we expect systematic administration of OMS906 to shut down the alternative pathway in parts of the body that are often not thought to be accessible to systematically delivered antibody therapeutics. So unlike a number of other complement inhibitors on the market or in development, one advantage of OMS906 is the ability to treat local inflammatory diseases by systemic rather than local administration.

Another advantage is that OMS906 inhibits the alternative pathway without affecting the functioning of the classical or lactin pathways. Therefore, we don't anticipate that OMS906 will carry the infection risk associated with inhibiting all 3 pathways as seen with C3 or C5 inhibition.

The manufacturing scale-up process is underway for our lead antibody to enable production of lots for nonclinical and clinical use. Clinical trials are slated to begin in late 2019 or early 2020, and we plan to target paroxysmal nocturnal hemoglobinuria or PNH, as our initial indication.

OMS906 should block both intra- and extravascular hemolysis, providing an important advantage over C5 inhibitors by preventing the anemia seen in patients receiving a C5 inhibitor.

Also compared to other PNH therapeutics, we believe that OMS906 holds additional key advantages including its expected dosing and safety profile.

As with our program advancing small molecule inhibitors of MASP-2 for oral administration, we're similarly developing small molecule MASP-3 inhibitors to block only the alternative pathway as well as potent biospecific MASP-2, MASP-3 inhibitors to shut down both the lectin and alternative pathways.

We'll close out our pipeline discussion with our G-protein coupled receptor or GPCR program, which continues to make significant progress. Omeros believes that it exclusively controls 54 GPCRs with broad-ranging indication.

We have discovered and are advancing small molecules against a number of these GPCRs, with focus currently on 2 specific cancer-related targets, GPR161 and GPR174. With respect to GPR161, our data demonstrate the receptor plays a critical role in oncogenicity or tumor formation in triple-negative breast cancer and sarcomas. We expect that modulators of GPR161 will block the growth of these tumors. Now using primary human tumors, we currently are evaluating the effects of our compounds that modulate GPR161 activity.

As discussed during our last earning call, GPR174 appears to be a unique target for cancer immunotherapy. Inhibition of GPR174 in human tissue increases tumor killing cytokine levels while both suppressing tumor protecting regulatory T cells and blocking tumor promoting checkpoint molecules.

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 currently are assessing the impact of GPR174 inhibition in animal models of cancer, including colon cancer and melanoma.

We've expanded our medicinal chemistry team so that we can expedite optimization of our MASP inhibitors and GPCR compounds to inhibit and further enable the initiation of clinical trials as quickly as possible.

I'll now turn the call over to Mike Jacobsen to discuss our third quarter financial results.

Thanks, Greg, and good morning, everyone. As Greg noted, OMIDRIA and total revenues for the third quarter were $4.6 million, and our net loss was $39.5 million or $0.81 per share. This includes noncash expenses of $5 million or $0.10 per share.

Here are some specifics regarding the third quarter results. Our reported revenue for the third quarter increased $3 million from the second quarter, but continued to be significantly impacted by the loss of the pass-through reimbursement on January 1 of this year. As expected, we did see increased wholesaler purchasing activity during the last 2 weeks of September as wholesalers increased their OMIDRIA on-hand inventory in preparation for Medicare reimbursement resuming October 1. Costs and expenses for the quarter were $40.1 million, a $7.8 million increase from the second quarter of this year. The increase was primarily due to additional manufacturing, scale-up activities for OMS721, including the purchase of $2.3 million in raw materials, which will be used for multiple OMS721 manufacturing runs over approximately the next 2 years. In addition, increased activities associated with the reintroduction of OMIDRIA and early prelaunch commercialization activities for OMS721 contributed to the overall increase in expenses. Interest expense was $4.6 million for the current quarter, which is in line with our expectations.

As of September 30, 2018, we had $55.2 million of cash, cash equivalents and short-term investments available for general operations, and $5.8 million of restricted cash in support of our CRG loan agreement and our building lease.

Following closing of the convertible debt, and expected receipt of additional proceeds from the [shoe], we will have $61.5 million of additional cash available for operations.

Now let's take a look ahead. Our fourth quarter reported revenues will show a significant increase over the third quarter due to the October 1 reinstatement of pass-through.

During October, as mentioned earlier, our sell-through to ASCs and hospitals was approximately 17,500 units. This represents 81% of the sell-through amount for October 2017, which was our highest single month of OMIDRIA sell-through to date. During the fourth quarter of 2018, the majority of our research and development expenses are planned to be related to OMS721, with OMS527, OMS906 and our GPCR program contributing lesser amounts.

We expect research and development costs will likely increase in the fourth quarter of this year, given our ongoing 721 Phase III clinical programs and manufacturing scale-up activities. Selling, general and administrative expenses for the fourth quarter of 2018 could also slightly increase from those in the third quarter primarily due to incremental OMIDRIA sales and marketing activities associated with the reintroduction of OMIDRIA and early precommercialization activities for OMS721. Interest expense for the fourth quarter should be approximately $4.3 million.

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

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

(Operator Instructions) And our first question will come from Steve Brozak with WBB.

Obviously, the external usage you're reporting on OMIDRIA is what you would look for and expect. But I do have a question. Can you give us any internal observations, anecdotes or details if possible on what you're seeing within your company, within your system on OMIDRIA? And I've got one follow-up after that, please.

Thanks, Steve. Well, we're very pleased with what we're seeing as the rapid reuptake of OMIDRIA with its reintroduction really just a month ago. I mean, again, as we've made pretty clear, October sell-through, which is the number of vials sold to our customers by our wholesalers, I'll say again, was 81% of our highest monthly number ever, which was October of last year. But it's interesting that even though those numbers look good, we're still coming out of the gate in a lot of ways. I mean, there are a number of facilities that are still testing reimbursement from CMS. Meaning, they know and they understand or they believe they understand that CMS is reimbursing once again for OMIDRIA. But they're testing that. So some are waiting for other facilities across town to try and see whether they get reimbursed. Others are submitting claims for only a few vials that have been used to confirm that they get reimbursed before really diving in again with OMIDRIA. But despite all that, the uptake is what you see. In fact, it's interesting that we seem to be outstripping our consignment vendor's ability to place the dispensing units within the facilities. So there are a number of facilities who are trying to come on board and have not yet been able to, because they don't yet have the dispensers available. So I think that really, when we look at all of the indicators, I don't think we could have expected anything better than what we're seeing with the reintroduction of OMIDRIA. We expect that utilization will continue to grow, supported by all of the things we talked about in the prepared comments. I think the data that continue to come out just further underscore that there really is no alternative. There's no alternative from an efficacy perspective; there certainly is no alternative from a safety perspective. So with that, I hope that answers your question.

Yes, no, obviously, I do appreciate the detail that you're providing, which leads me to the last question, and I'll hop back in the queue. Obviously, OMIDRIA is selling again, and it's meeting your expectations. How should we -- going to 721, because these are 2 different types of products in so many different ways. How should we look at Omeros into the future given OMIDRIA and 721? What type of franchise should we think OMIDRIA -- I'm sorry Omeros should be? What would you envision us thinking about it looking at it into the future? It's a general question, but given what just took place, I'd like your thoughts on that. And I'll hop back in the queue.

Well, look, I understand that -- I think I understand what's driving the questions. So maybe I'll address that directly. We understand that some can view Omeros as having really 2 somewhat disparate components. One is Spec Pharma, ophthalmic product, and the other is sort of cutting-edge deep biotech pipeline. That may on the surface appear, again, somewhat incongruous. I think that we see it quite differently. We see it as really a wonderful blend of a front-end revenue-generating engine in OMIDRIA, which drives a very deep, very high potential biotech pipeline. And I think what we just did with restructuring our debt really underscores that. I mean, we have cleaned the cap table or certainly restructured the cap table. And we're looking at the growth of OMIDRIA to really fund that pipeline. And while there are no guarantees, we certainly are pleased with all indications that we have right now regarding OMIDRIA. And so my personal expectation is that, that will occur and in the not too distant future. So I think that this is all about how do we fund all of the programs that we are running. And how do we fund them in a nondilutive or a minimally dilutive way. That's been the approach, that's been the objective. I think we're executing on it well. I mean, clearly by the number of outstanding shares we have to date, we've executed on it, I would say quite well. So I think that's how we think about it. The franchise continues to move forward. We continue to look for additional opportunities for the ophthalmic space. It makes sense to put something else in the bags of our dedicated sales reps, but something that fits, something that matches what we're doing. Something with the same call pattern. There are number of opportunities; we look for those. But all of this makes sense. And I think, certainly from our perspective, it all works well together. Again, don't know if that directly answered your question. I hope so.

No. It hit the nail right on the head.

And our next question comes from Jason McCarthy with Maxim Group.

Could you help us understand the path forward for OMS721 relating to the IGA data? Which honestly, we viewed as positive considering the magnitude of the proteinuria decline in patients during the follow-up. But then I'd to see how does that compare to relevant benchmarks? And if you can talk about the implications for the ongoing P3 trial, which, if I recall, does allow for subsequent treatments after the first course of treatment.

Yes, thank you. Let me answer those questions, I believe, in the order in which you stated them. The plan for the IGA program is to do just what we've been planning to do, which is move forward with the Phase III program as quickly as possible. The Phase II, the second cohort Phase II data that we just put out from our perspective, and again, we seem to invoke here the experts in IGA, but I'll do it again, the experts and we believe that the data from the second cohort as well as the data from the first cohort really increase the probability of technical success for the Phase III program.

The Phase III program is structured in such a way that there is both accelerated and full approval pathways. So remember that we have and a large population or the overriding population is one that has proteinuria, 24-hour urine proteins of a gram per day. There we have the opportunity for accelerated approval, at a level of proteinuria reduction that's substantially less than what we've already demonstrated in the Phase I and Phase II cohorts. And the opportunity for full approval on proteinuria, based on something that we would expect would be similar to what we've already shown. Our ability to achieve full approval on proteinuria alone, and our unique ability to do that, what we believe is the exclusive ability to do that, is really important because what that means is you've turned GFR into a safety endpoint. And you've shaved off several years of your clinical trial. So that becomes important. There's a subset of patients that we're also evaluating and based on our discussions with FDA, we believe that they have a keen interest in high protein spillers. So those patients who are demonstrating 24-hour urine proteins in excess of 2 grams per day. There again, if you look at our data, if you look at the data from our first cohort, and you look at the data from our second cohort, what you see is very clearly, we are markedly reducing those proteinuria levels. And the Phase III trial again, we have the opportunity for full approval on those high protein spillers. How does all of this compared to other drugs that are now in talking about being in the IgA space? Well, again, I think, as I said, we're the only drug with breakthrough therapy designation for IgA nephropathy. OMS721 is also the only drug that can, as far as we know, achieve full approval on proteinuria alone. So I think that answers the question pretty well. I'll add just a little color on that. The magnitude of proteinuria reductions that we're seeing in both the first and second cohort are truly unprecedented. I mean, others are talking about 24%, 25%, 27% reductions. We're talking about 50%, 60%, 70%, 80% reductions. There's a difference. We think that difference is meaningful. We're also treating very sick patients. I mean, some of the patients that are enrolling in the study have very low GFRs. And yet -- and have had the disease for a very long duration. I mean, again, in this latest second cohort, the median time from diagnosis to entry in the study for the OMS721 group was 19 -- was over 19 years. I mean, compare that to the first cohort, where 3 of the 4 patients were less than 2 years from time of diagnosis when they entered the study, and the fourth was less than 8. And it's sort of the same thing when you look at I think potentially other programs. So we're treating sick patients. We're showing results, really quite strong results across all of these patients, regardless of their level of disease. That's impressive. So I think that answers that second question.

Your third question is, are we set up for multiple course dosing in the Phase III trial? Absolutely. The Phase III trial also has a run-in period. It's always had a run-in period. The reason it has a run-in period was because there we expect to do a treatment-versus-placebo comparison. So we have a run-in period to optimize RAS blockade on these patients, and also to ensure that we allow enough time for patients to become compliant with their existing RAS blockade. We do have repeat dosing, and again, all of the data that we've generated to date we believe just increase the probability of technical success for that Phase III program. So let me stop there, and see if I've missed anything that you asked.

No, it definitely helps put everything in context. And then just one quick follow-up, if you have the time. As you guys prepared a file in the EU in U.S. for stem cell TMA, could you talk a little bit about the market sizes for both IgA Nephropathy and TMA? And the possible launch strategy in TMA?

Sure. Sure, again, we're working to finalize with FDA, agreement around the proposed protocol for our -- chart review-based historical control. We are preparing, as we noted, to submit both BLA and MAA. The markets for stem cell TMA, let's address that one first. There are 20,000 stem cell transplants in the U.S., about 40,000 in Europe. About 40% of allogeneic transplants will have a TMA. And if you look at the published data, as much as 80% of those will have some marker or some aspect of high risk disease. So when we kind of distill all this down, you're sort of across U.S. and Europe, you're talking about an ultra-orphan indication. But a reasonably sized ultra-orphan indication of somewhere between 6,000 and 9,000 patients, and again, these are our best guesses, these are very difficult numbers. There aren't -- there's no repository of these data. But that's where we're generally coming out. Again, I reserve the right, please, to revise that estimate at any time. But I'm telling you what our best guesses are now.

The interesting thing is that the costs of management of a TMA patient is high. So there are a couple of sites that -- of which we've been told that have demonstrated that those numbers are about 3 million to treat a stem cell patient. When you think about that, the cost for that kind of management, and when I say treat, I should actually use the word management, because there is no treatment for stem cell TMA. We simply manage the process now. So obviously, we think that there is a significant opportunity for a drug that can take these patients who have severe or high-risk TMA. And in that setting have a very high likelihood of death. And we get them through that phase. And this is not a -- mostly, this is not commonly a relapsing issue. So get them through TMA or their severe TMA, they do well. So we think that there is a clear and a significant market for a drug that will achieve that, and we believe that OMS721 achieves just that.

Turning to IgA. In the U.S., the numbers are about 150,000 to 180,000 patients in the U.S. and that's -- those are prevalence numbers, not incidents. In Europe that number is higher; in Asia that number is higher still. There is some discussion that those numbers may actually be underestimates, because again, in IgA there is no treatment. So given that there is no treatment, there is the propensity to underestimate how many of those patients are really out there. Again, the market here we see as large, for a drug that can reduce levels of proteinuria as it appears that OMS721 does. The idea would be certainly that 721 could well be used in a good proportion or large proportion of those patient numbers that I gave you.

There's probably one thing I should add around the stem cell market. Remember when we talked about those numbers, we're talking about TMA alone, stem cell TMA alone. Yet that's an endothelial injury or part of the endothelial injury syndrome. GVHD, veno-occlusive disease, diffuse alveolar hemorrhage all are parts of or components of the endothelial damage syndrome. In fact, there are patients that I think as you know that we've treated with 721 who had concurrent steroid-refractory GVHD and/or DAH. And in those patients, we not only saw a resolution of the TMA, but we saw resolution of the GVHD and of the DAH. So this market kind of continues to expand. And we're certainly aware of that. EBMT is ongoing right now. And there are discussions, I'm told just today, around endothelial damage syndrome. And the extent of those potential indication. So we're excited about these opportunities.

All right. Definitely a large opportunity there.

And our next question comes from Serge Belanger with Needham and Company.

Just a couple of question for me, Greg. First, I think you expressed high confidence in extending the pass-through reimbursement of OMIDRIA through one of the 2 CMS rules that was issued on Friday. Can you just talk about the process in getting there? Does it involve an application for a J-code? And is that something that could play out over 2019?

Yes, I want to thank you, Serge. And let me just first clarify. We referenced 2 different pathways. One is a set pathway in the 2019 rule, which is the nonopioid provision. The other is something that FDA referenced that they are considering for future rulemaking. So that is not part or has not been the OPPS rule. The approach is to continue our interactions with CMS and with HHS to achieve the endpoint that we're looking for, which is permanent or long-term separate payment for OMIDRIA.

We expect that we're going to have that, as I said, because we believe that we've already met those criteria, except for the fact that we are separately paid. And CMS made it very clear that they're looking at 2019, those drugs that will be packaged. Clearly, we're not packaged in 2019 because of the success we had in extending pass-through. And we now have separate payment through October 1, 2020.

But -- so the process is pretty clear. It's kind of just what we've been doing and expecting that we meet it, continue the discussions and go from there.

But we're not sitting on our hands. We continue to create additional data or generate data through investigator-sponsored or initiated studies. We continue the discussions with CMS. We continue to show the value of OMIDRIA. And I think the value is pretty clear, right? And I think what CMS is also very concerned about, and appropriately so, is access. This is all about access. And I think it's pretty clear that when there is no separate payment for OMIDRIA, access is denied. And that's -- I think CMS, again, clearly recognizes that, that's a problem. You've got patients who have compounded products then as their only alternative. And when you look at the recent problems that have been associated with compounded products, I mean, 68 patients blind in Dallas alone due to compounded products used in cataract surgery. I think the alternative of compounding because there really is no other alternative to OMIDRIA. That alternative really is not acceptable. And I think all of that plays into it. You asked specifically about a J-code. We will at some point obtain a J-code, we expect. But remember, we don't need one. Certainly not now. We have a C-code and that C-code is 9447, and we are reimbursed by it. As an example, [Expero] does not have a J-code. So clearly, it's not a requirement. But it's something that we're looking at.

Okay, and then on 721, can you give us an update on where you are in the Phase III trials for aHUS and IgAN in terms of enrollment? And whether enrollment has advanced enough before you can start talking about timeline for -- timelines for reading out these trials?

Yes, our clinical group has not yet given those updates. So I should not be giving those here, as you understand. So I won't comment on that now, other than to say that, that they are enrolling and ongoing.

And our next question comes from Ram Selvaraju with HC Wainwright.

I try to make this as

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as possible. Firstly, a couple of quick things on OMIDRIA. I wanted to know if you could provide us with some more epidemiological details around floppy iris syndrome? And what is likely to be the potential path forward for OMIDRIA there in terms of getting a formal label and looking to extend its utilization into that area as applicable? And secondly, if you could comment on the status of the OMIDRIA European commercialization situation? And then with respect to 721, just 3 very quick points. Firstly, I wanted to know if you could comment on the likelihood of enrollment of nephrotic patients in the Artemis IgAN study, within that more severe patient population that you previously referred to during your prepared remarks? Secondly, if you could comment on the nature of the timing of the filing of those sections of the rolling BLA submission that you're currently preparing for? And then finally, strategically, maybe just give us some frame of reference regarding how you look at the potential commercialization of OMS721 from Omeros' standpoint? Would that be a combination of go it alone and partnership? Would it be going at it alone in the U.S., partner outside the U.S.? Or some other kind of mix, as it were, that we should be contemplating here?

Okay. I'll try to hit all of those. I think I've got them in my head. But let me run through them. Your first question was around IFIS or intraoperative floppy iris syndrome and what impact that could have. We were very pleased to see the results of the study by Dr. Silverstein. This was a study that he put together, he ran. It was double masked in ophthalmology. They don't like to say double-blind, they say double-masked. So this was a prospective randomized double-mask controlled study. And the data were outstanding. What it clearly showed was that use of OMIDRIA prevents IFIS. Why is that important? Well, IFIS is a real problem. IFIS is a growing problem as well within cataract surgery. What IFIS is, it's a symptomatic constellation of events that occurred during surgery where the iris all of a sudden, and remember the Iris is that colored part of the eye surrounding the pupil, and that needs to be as large as possible. All of a sudden that becomes unstable and it becomes -- it starts to billow, it becomes like a flag. It starts to wave and move in all different directions. Makes the operation very difficult, makes the operation more dangerous. And the problem with it is, you can't predict it, so it is linked to patients who have had or have received alpha antagonists. So, Flomax, for example. So drugs that improve urinary outflow with BPH have been -- are associated with IFIS, for example. The interesting thing about the alpha antagonist used though is, you don't need to be on it at the time. A single exposure to an alpha antagonist has been -- is believed to be enough to cause IFIS when you have cataract surgery. So when you talk to patients about their risk factors for such -- for IFIS, they often don't recall. They may have had that drug a long time ago. But in any event, which makes the diagnosis or at least the anticipation of the problem difficult, there is a study by David Chang, it's a well-cited study, that shows that about 25% of all patients who have no risk factors for IFIS will have IFIS. So you get the message of that one, which is you can't predict who's going to have IFIS. You get into the OR, all of a sudden something looks like it's should be an easy case, turns into a very difficult one. And again, OMIDRIA prevents that IFIS. So that's going to be important. It's going to be important, I think, from a utilization perspective. Again, potentially from a reimbursement perspective. You asked about whether we would think about a label expansion. Yes, we could think about that. Yes, we are thinking about that. Depends on whether we believe it's going to be necessary. I think it's pretty clear to docs what OMIDRIA does.

The second question you asked was about Europe and our plans there. Our plans are as they have been, which is to drive the penetration of OMIDRIA within the U.S. market after we've reached a substantial penetration into U.S. markets, then go to Europe. So I would not expect anything from Europe in the immediate near term.

I think that you asked about nephrotic syndrome and our willingness or ability or likelihood to enroll patients with nephrotic syndrome in the 721 IgAN study. The nephrotic syndrome is not just the level of proteinuria, as you know, it's also the edema and other components of the nephrotic syndrome that go along with it. We're not enrolling patients who are frankly nephrotic, because of all the other kind of confounding components of that. But we certainly are enrolling nephrotic range patients. Nephrotic range patients means that their proteinuria is greater than 3 grams. And that's the definition of nephrotic range. And yes, the majority of in fact, in the second cohort, I would say the majority of our patients are nephrotic range. So greater than 3 grams of proteinuria.

You asked about our timing and filing of a rolling BLA. We continue discussions with FDA to reach agreement on the specifics and timing of the BLA. Those discussions are going well and we expect that we'll be able to get there soon. What we have done is prepare those, the nonclinical sections, so that when we do have the go-ahead, we can go ahead and submit them. So that's where we stand in Europe. As I said, we've filed our intent to submit and we expect a rapporteur and co-rapporteur at the end of year.

I think your final question, if I recall, was around 721 in Europe, and how we plan to commercialize that. I'll answer that very briefly. We currently plan to commercialize that independently. We think that certainly for stem cell TMA, where the users of the drug will be highly specialized facilities, a small number of highly specialized facilities both in the U.S. and Europe. That's something that we are able to manage and can manage well. I think we've shown that with what we've done with OMIDRIA. So I think I've hit them all. Let me know if I've missed anything.

Thank you. And at this time, I am showing no further questions in queue. I'd like to turn the call back over to Dr. Greg Demopulos for closing remarks.

Well, that wraps up our call for today. Thanks again, everyone, for joining us. As you can hear, and I think as you understand, things are coming together nicely for OMIDRIA for OMS721 and the rest of our pipeline. We'll keep you posted periodically on our progress. As always, we appreciate your continued interest and support. And have a good day. Thanks to everyone.

Ladies and gentleman, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone, have a great day.