Omeros Corporation

are advancing. In addition to our work with narsoplumab in COVID-19 and completing the rolling BLA submission in TATMA, our other Phase III programs for narsoplumab continued to progress in the third quarter. Our Phase III trials in atypical hemolytic uremic syndrome, or AHUS, and in immunoglobulin A, or IgA nephropathy, are ongoing. Our focus remains on IgA nephropathy and on our Phase III Artemis IGAN trial, which has now nearly 120 sites activated worldwide. Interestingly, data from multiple research groups now indicate that the tubulointerstitial disease component in IgA nephropathy involves lectin pathway activation on the surface of damaged tubular cells. caused by proteinuria and or ischemia reperfusion injury associated with, for example, acute kidney injury, leading to tubulointerstitial inflammation and fibrosis. This evidence further underscores the role of the lectin pathway in IgA. Narsoplumab appears to be the only drug with FDA's breakthrough therapy designation for IgA nephropathy and the only drug that can obtain full approval on proteinuria data alone, potentially shortening the full approval process by years by not needing to show improvement in EGFR. We think that there are good reasons for these singular distinctions afforded in our supplement, and we look forward to seeing and sharing the data. We view narsoplumab as not just a drug, but as a platform therapeutic. and we continue to expand the scope of indications that we're targeting for narsoplumab and our other MASK2 inhibitor programs beyond endothelial injury syndromes and proteinuric renal diseases. MASK2 and the lectin pathway play a central role in the innate inflammatory response, and their importance in driving a long list of diseases and disorders is becoming increasingly recognized and understood. Our long-acting MASK2 antibody, OMS1029, is expected to be in the clinic in early 2022 and to allow once monthly or even less frequent subcutaneous dosing. We're hoping to follow that up quickly with our orally available MASK2 inhibitor. Before moving on to Omidri and other programs in our pipeline, I'll bring you up to date on our other complement program, OMS906, our MASP3 inhibitor. MASP3 is responsible for the conversion of Profactor D to Factor D and is thought to be the key activator and premier drug target in the alternative pathway. In September, we began dosing human subjects in a placebo-controlled, double-blind, single ascending dose and multiple ascending dose phase one clinical trial. The trial is running on schedule. Our first cohort has already completed dosing. The second cohort is being dosed now. And the third and fourth cohorts are enrolling. Initial data readout is expected in the coming year. Data from our OMS 906 program were presented last month at the fourth complement-based drug development summit. And the presentation can be found on our investor relations website. As with our MASP2 program, we're also moving ahead with the development of orally available small molecules that inhibit MASP3. OMS906 is a long-acting antibody achieved in part by modifications to its FC region. To avoid primarily any potential encumbrance to the late stage clinical or commercial manufacturing of OMS906, At its current manufacturing facility, we recently entered into a licensing agreement with Zencore, as have a good number of other companies with antibody therapeutics that have long half-lives. We expect that this will entail the payment of modest milestone fees and low to mid-single-digit royalties, while Zencore's patents remain extant in the jurisdiction of sales. In parallel with our MASP2 and MASP3 clinical work, a great deal of complement research is being done both in our Seattle facilities and in our labs at the University of Cambridge. Our work has previously resulted in redefining the biology of the complement system. Examples include the C4 bypass mechanism by which MASP2 directly activates C3 and the role of MASP3 in activation of the alternative pathway. Our team continues to redefine complement biology, and we plan to publish these new discoveries once we have securely established the corresponding patent positions. So let's turn now to Omidria, our commercial ophthalmic drug product. Net revenues from Omidria in the third quarter were $26.1 million after deducting out $8.7 million return reserve associated with the October 1st expiration of pass-through for Omidria. Had we not booked this return reserve, our Q3 revenues would have been an all-time record high. This was despite the headwinds of COVID-19, which, because of the additional safety precautions required in the operating room, continued to affect overall cataract surgery volumes by restricting throughput of cases in the surgical facilities. Our net loss for the quarter was $38.5 million, or 66 cents per share, of which $13.6 million, or 23 cents per share, were non-cash charges. Our non-GAAP adjusted net loss for the quarter was $19.9 million, or 34 cents per share. This non-GAAP adjusted net loss also conservatively includes the $8.7 million or 15 cent per share deduction from our third quarter revenues for the return reserve. If and when reinstatement of separate payment for OMIDRI occurs, we expect to recover the $8.7 million reserve. As of September 30, 2020, we had $153.5 million of cash and investments available for general operations. This includes the receipt of net proceeds from our third quarter financing activities, specifically $93.7 million from the issuance of 6.9 million shares of stock, and an additional $76.9 million from issuing new unsecured convertible debt after repurchasing $150 million of unsecured debt that was previously outstanding. We also purchased a capped call on the new debt that effectively increases the initial conversion price of $18.49 per share to $26.10 per share. This substantially reduces dilution or cash expense in the event of a conversion. We saw some encouraging trends in Omidria sales in the third quarter as well. Despite reportedly longer surgical turnover times and reduced cataract surgery procedural throughput due to COVID protocols in surgical facilities, per-facility utilization of Omidria and Q3 increased over pre-COVID levels. Also, overall units sold progressively increased throughout the quarter. We expect that this momentum will be restored and continue to grow if and when Omidria is granted separate payments. As previously discussed, our extension of pass-through reimbursement for OMIDRIA expired on October 1st. The result of that is that OMIDRIA, when used for Medicare Part B beneficiaries, is now reimbursed as part of the ambulatory payment classification for cataract surgery. We have had multiple meetings with CMS and HHS and have made a compelling case based on regulatory law. that CMS must pay separately for Omidrea as a non-opioid alternative used during surgery in the ASC setting now that the drug's pass-through status has ended and it is packaged under CMS's outpatient prospective payment system. The criteria for separate payment are strictly objective and Omidrea meets them all. We are optimistic that CMS will comply with its own regulation and provide separate payment for Omidria in the ASC during the fourth quarter of 2020 and throughout calendar year 2021, which subsequently could be further extended. In parallel, a broad coalition led by Voices for Non-Opioid Choices and supported by over 50 bipartisan House representatives and over 20 bipartisan senators continues to advocate for the No Pain Act. This bill would extend separate payment in the ASCs and in the hospital outpatient surgery departments for a period of at least five years for Omidria and other non-opioid alternatives used during surgery. In addition to strong support from surgical and nursing societies, trade organizations as well as patient advocacy groups and individual practitioners, two large and influential societies The American Medical Association and the American Society of Anesthesiologists have recently endorsed the No Pain Act. An opportunity for enactment of this bill could come during the lame duck session of Congress. You might recall that a peer-reviewed publication in the Journal of Cataract and Refractive Surgery showed that Omidria significantly reduced the need for intraoperative fentanyl, a highly addictive opioid, while also reducing patients' pain. Another manuscript demonstrating that Omidrea is opioid-sparing was recently published in the peer-reviewed journal Current Medical Research and Opinion. The study demonstrates that patients who received Omidrea during cataract surgery were prescribed fewer post-operative opioid pills than patients who did not receive Omidrea, despite the Omidria treated group having a greater incidence of preoperative comorbidities and higher risk for surgical complexity. To continue to build validation of the opioids bearing benefits of Omidria within the published literature, we have partnered with the Cataract Surgery Pain Study Group. The Cataract Surgery Pain Study Group is led by Dr. Terry Kim, President of the American Society of Cataract and Refractive Surgery, and Professor of Ophthalmology and Head of the Cornea and Refractive Surgery Services at Duke University, together with other cataract surgery thought leaders from across the nation. The group's mission is to examine the role of non-opioid alternatives like Omidria in cataract surgery. Based on the group's research, multiple publications will likely be generated adding to the body of literature supporting the role of Omidria in reducing the need for intraoperative and postoperative opioids in cataract surgery. The pain study group's research and publications should further strengthen the case for the separate payment of Omidria by CMS. In the meantime, our commercial team is focusing its Omidria efforts on driving utilization in hospitals across commercially insured patients, and in VA facilities. The advocacy and relationships we have in the ophthalmology community remain strong. We have multiple avenues to secure separate payment for Omidria, and we will let them play out. While we are planning for success, we also have established alternative sales strategies. If needed, these can be implemented quickly to ensure that Omidria will be available for the long term and providing value to both patients and our shareholders. Moving on to our phosphodiesterase 7 or PDE7 inhibitor program, OMS527 targets addiction. Our phase 1 clinical trial was successful, both with respect to safety and achieving daily oral dosing. While our current clinical focus remains on expanding indications for our MASP2 and MASP3 complement franchises, We plan to advance our OMS527 Phase II program pending resource availability. We also continue to see a unique opportunity in targeting GPR174 for cancer immunotherapy. GPR174 is an immunosuppressive G protein coupled receptor whose activity is intimately linked to the tumor microenvironment. Our recent data with mouse tumor models further validate GPR174 as an important and novel target for enhancing a T cell's capacity for killing cancer cells. We have found that GPR174 deficiency in tumor-specific CD8-positive cytotoxic T cells increases their activation, resulting in anti-tumor immune responses that markedly reduce tumor growth. Similar to GPR174, the adenosine GPCRs A2A and A2B are also activated by products of the tumor microenvironment with all three receptors, GPR174, A2A, and A2B, using the same cyclic AMP signaling pathway. Our ongoing in vitro signaling experiments continue to reveal that inhibition of all three receptors synergistically enhances T cell activity. So we believe that new and more effective cancer immunotherapy approaches will involve GPR174 inhibitors alone or in combination with adenosine receptor inhibitors. Motivated by this understanding, we are aggressively developing both small molecule and antibody inhibitors of GPR174. Our team continues to make discoveries around the GPR 174 program, and we plan to make those public after filing additional patent protection. With that, I'll turn the call over to Mike for an overview of our third quarter financial results. Mike?

Thanks, Greg. As Greg noted, the mid-range and total revenues for the third quarter were $26.1 million. Our net loss for the quarter was $38.5 million or 66 cents per share, which does include a technology access fee of $5 million or 9 cents per share and non-cash expenses of $13.6 million or 23 cents per share. And of the non-cash expenses, $6.4 million or 11 cents per share were directly associated with the closing of our recent debt financing. Adjusting for these items, our adjusted net loss on a non-GAAP basis was $19.9 million, or 34 cents per share. Both the GAAP net loss and adjusted net loss also include a deduction of $8.7 million, or 15 cents per share, from total revenues in the third quarter for a Omidria return reserve related to the October 1st expiration of pass-through. Upon reinstatement of separate payment for Omidria, we expect to recover the $8.7 million reserve. As of September 30th, 2020, we had $153.5 million of cash, cash equivalents and short-term investments available for general operations. The increase from the second quarter is due to two factors, the first being $93.7 million in net proceeds received from the sale of the 6.9 million shares of our common stock in an underwritten public offering. In addition, during the third quarter, we issued $225 million of five and a quarter percent unsecured senior convertible debt, and we purchased $115 million of our outstanding 6.25% unsecured senior convertible debt. The new notes are callable after three years and are due in February of 2026. In conjunction with the issuance of the new convertible notes, we did purchase a cap call that offsets the dilutive impact or potential cash expenditure associated with the conversion of the new notes, while the market price of our stock trades between the initial conversion price of $18.49 per share and the cap price of $26.10 per share. As I previously stated, our mid-year revenue for the third quarter includes a deduction of $8.7 million or $0.15 per share as a return reserve. As you may recall from some previous calls, upon the expiration of pass-through reimbursement, we recorded a return reserve for any product that at our wholesalers that might not be sold to ASCs and hospitals should separate payment not be reinstated and for any unused inventory at the ASCs or hospitals that may be returned to us. In the event that separate payment is reinstated in the near term, the inventory should be used and we would reverse the return reserve accrual, resulting in incremental OMEDIA revenue. Research and development expenses were $31.3 million for the third quarter, an increase of $7.2 million over the second quarter. The increase was primarily related to the $5 million technology license agreement for OMS 906, our MAS III product candidate, removing any potential encumbrance to the late-stage clinical or commercial manufacturing of OMS 906 at its current facilities. With respect to our manufacturing activities for narsopalmab, six additional batches of drug substance are underway at Lonza, and next month we will be making additional drug product at Vetter. All of the drug substance and drug product being made at Lonza and Vetter are expected to be available for commercial sale following the anticipated approval of narsopalmab in TA, TMA for use in treating critically or for use in treating critically ill COVID-19 patients. As you may recall, manufacturing costs are generally expensed to R&D if incurred prior to the first approval in the U.S. or Europe. After approval, these manufacturing costs will be capitalized as inventory on the balance sheet. Selling general and administrative expenses were $19.8 million, an increase of $2.9 million from the prior quarter. The increase was primarily due to sales and marketing activities in connection with the U.S. launch of Narsopimab. Interest expense for the current quarter was $6.9 million. The $900,000 increase in the second quarter primarily reflects the $110 million in net new borrowings. In connection with the repurchase of a portion of our previously outstanding convertible debt, we incurred a non-cash loss of $13.4 million related primarily to the unamortized discounts that remained on the retired debt. The debt transaction also triggered the recognition of a $7.9 million tax benefit for the third quarter. Now let's take a look ahead to the fourth quarter. As we've discussed, pass-through reimbursement expired on October 1st. We believe we have multiple avenues to obtain separate payment from CMS for Medicare Part B patients receiving Omidria, but we cannot guarantee if and when we will be successful. Therefore, we cannot predict future Omidria product sales at this time. Our R&D expenses for the fourth quarter should be slightly higher than the third quarter of 2020. This is due to the additional commercial drug substance lots being made at Lonza which should be ready for delivery in the fourth quarter of this year and in the first quarter of next year. We are also making additional commercial drug product at Vetter during the fourth quarter. As mentioned earlier, these costs are generally expensed to R&D until norsopimab is approved by the FDA. SG&A costs are expected to increase slightly in Q4 as we continue to prepare for the U.S. launch of norsopimab for TA, TMA. Interest costs for the first quarter should be approximately $8 million, approximately half of which is non-cash. With that, I'll turn the call back over to Greg. Greg?

Thanks, Mike. And with that, we'll open the call to questions, operator.