Omeros Corporation (OMER) Q3 2015 Earnings Report, Transcript and Summary

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 the call over to Mark Metcalf at Omeros.

Good afternoon, and thank you for joining the call today. I'd like to remind you that some of the statements that we'll make 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 10-Q filed with the SEC earlier today for a discussion of these risks and uncertainties. Now I would like to turn the call over to Dr. Greg Demopulos, Chairman and CEO of Omeros.

Thank you, Mark, and good afternoon, everyone. Also with me today is Mike Jacobsen, our Chief Accounting Officer. I'll start today's call with a corporate update, and then Mike will provide an overview of our third quarter financial results. We have some time reserved for questions after the financial overview. So let me start with an update on U.S. sales of our FDA-approved product, Omidria, which we started selling broadly in the U.S. in April of this year. As most of you know, Omidria prevents intraoperative miosis or pupil constriction and reduces postoperative pain, providing consistent and predictable management of these problems for ophthalmic surgeons and their patients. As Mike will discuss further in the financial update, our third quarter Omidria net sales were $3.2 million. While this was slightly above last quarter's and reflects the same net revenue per vial sold, the net sales figure doesn't reflect our real progress with Omidria. As is the convention in the pharmaceutical industry for the purpose of financial statements, we report revenue based on our sales to wholesalers or sell-in. Early in a product launch, however, that approach doesn't tell the full story. In a product launch, wholesaler inventory levels can fluctuate. Wholesalers do not have a historical data by which to dial in the amount of inventory that they plan to hold. The result can be substantial variability in the reported sales to wholesalers or the sell-in number that we report in our quarterly 10-Q versus the dollars associated with the unit vials that the wholesalers have actually shipped to the ASCs and to the hospitals or the sell-through number. This is the case for Omidria. At the end of the second quarter, our distributors held about 4 to 5 weeks of Omidria inventory. At the end of the third quarter, that inventory amount had decreased to a matter of days. Our wholesalers can hold less inventory because we use a single-tiered as opposed to a multitiered distribution model for Omidria. Following receipt of a wholesaler's order, we airfreight Omidria from our warehouse to the wholesaler's specialty distribution warehouse, generally on the same day. The wholesaler then airfreights the product directly to the ASC or hospital, again, routinely on the day that the order is received. The entire process from the wholesaler placing an order to receipt of Omidria by the ASC or hospital can take as little as 2 to 3 days. So at this stage of our launch, product utilization by surgeons and facilities is better understood by also examining sell-through or the units shipped by our wholesalers to ASCs and hospitals. Looking at sell-through as reported to us by our wholesalers, the actual number of vials of Omidria shipped to ASCs and hospitals in the third quarter increased 71% over that in the second quarter. This increase reflects growth in customer account, order frequency and average order size. The Omidria sales cycle decreased quarter-over-quarter. From request of samples to the placement of the second order, in Q2, the duration was about 12 weeks. In the third quarter, it was cut in half to about 6 weeks. Approximately 30 of the top 100 cataract surgeons by procedural volume and approximately 20% of ambulatory surgery centers in the top 3 deciles by procedural volume have begun using Omidria. 3 of the top 4 ambulatory surgery center chains in the country have all also now opened their ASCs to Omidria, including AMSURG, which has the largest surgical partners, and USPI. The growth trends seen in Q3 have continued into the fourth quarter. Sales of Omidria in October increased 47% over those in September, and across those same months, new customer accounts increased by 32%. The sales cycle also continues to shorten even further. Equally impressive is the physician response to Omidria. Surgeons are using Omidria regularly for both their routine and difficult cataract cases, including intraoperative floppy iris syndrome or IFIS and pseudoexfoliation as well as in conjunction with femtosecond laser, and the reported results have been consistently positive. We continue to receive reports of surgeons greatly reducing the use or never yet needing costly mechanical pupil-expanding devices when using Omidria. In fact, an abstract has been submitted to the Annual Meeting of the American Society of Cataract and Refractive Surgery by one of these surgeons who conducted a retrospective case-control analysis, which showed statistical superiority of Omidria over epinephrine in the irrigation solution in reducing the need for pupil-expanding devices. Surgeons are also noting that their surgical times are decreasing with Omidria. In addition to recognizing the benefits of Omidria, we are seeing that surgeons and facilities are increasingly voicing concerns about the risks, including accreditation and liability risks of using compounded products. These concerns have been underscored by the recent FDA sightings of unsanitary conditions and failed sterility, resulting in nationwide product recalls by at least 3 compounding pharmacies, all of which produce and sell ostensibly sterile ophthalmic products. With respect to surgeons, we are clearly seeing that once surgeons use Omidria, they want to continue to use it. A case in point, one of the most vocal and public critics of Omidria when it was first launched, a well-respected opinion leader in ophthalmology to his credit, he kept an open mind and tried the product. He is now one of the strongest advocates for the broad use of Omidria. So with all that is going well, what are we seeing as the major impediment to Omidria becoming standard of care? Lingering skepticism about reimbursement, and we are making significant headway here as well. Our reimbursement team has been working hard to expand coverage for Omidria. As we've mentioned previously, Omidria is reimbursed by 100% of Medicare Administrative Contractors and by Medicare Advantage plans as well. To date, we've also confirmed Omidria coverage for 145 million of the 155 million lives insured by the top 30 U.S. commercial payers, including Aetna, Cigna, Anthem/WellPoint, Humana, UnitedHealthcare, Coventry, Medica and Kaiser Permanente. We've also confirmed that the American Association of Retired Persons or AARP, USAA, TRICARE and Blue Cross/Blue Shield carriers reimburse for Omidria. Recently, we have focused on the top 4 regional insurers in each of the 5 U.S. geographic regions. Here, we have also been successful, confirming coverage to date for Omidria by 91% of those carriers. We believe that every patient, surgeon and facility should be able to access Omidria. So while reimbursement for the product is excellent and continuing to expand, in October, we introduced the OMIDRIAssure comprehensive reimbursement services program. OMIDRIAssure is comprised primarily of 3 services: one, the OMIDRIAssure information hotline for physicians and facilities seeking personalized help and information on Omidria coverage, coding and reimbursement; two, the "Equal Access" program, whereby financially eligible uninsured and government-insured patients, meaning Medicare and Medicaid, receive Omidria free of charge for use during surgery. This is expected to be a limited number of patients, given that approximately 90% of Medicare patients also have supplemental or secondary insurance. And finally, number three, the "We Pay the Difference" program for commercially insured patients, under which Omeros pays the facility on behalf of the patient the difference between the facility's acquisition cost for Omidria and the amount covered by the patient's insurance, less the $30 patient responsibility. Our objective with OMIDRIAssure, through its coverage and reimbursement support services for surgeons and facilities, is to remove uncertainties about coding, billing and coverage of Omidria so that all cataract surgery patients can benefit from the drug. Given the strengths to date of Omidria reimbursement, we do not expect the program to have a meaningful effect on the gross-to-net deductions for Omidria. Most important, by removing the need for surgeons and facilities to select patients based on insurance coverage for Omidria, we expect that OMIDRIAssure will have a positive effect on revenues. While still early in the launch of OMIDRIAssure, daily patient enrollment in the program continues to climb. We also have made substantial progress in securing agreements, enabling discounts on qualifying purchases of Omidria by certain U.S. government purchases and other eligible entities. None of these discounts affect, in any way, the average selling price or ASP of Omidria. The qualifying institutions include 340B-eligible hospitals and clinics, 340B facilities or those that treat a substantial number of indigent patients and include many of the academic centers in the country. In addition to our Federal Supply Schedule and Public Health Services Act Pharmaceutical Pricing Agreements, which were put in place in the second quarter, last month, we entered into an agreement with Apexus, an authorized 340B prime vendor. The agreement entitles Apexus customers to purchase Omidria from our wholesalers at a sub-340B, sub-WAC discount. These arrangements further expand access to Omidria across patients insured by government and commercial payers. So collectively, OMIDRIAssure, together with the 340B and other government programs, should address any lingering skepticism about the strength of reimbursement for Omidria. Given the growth in Omidria sales, we are in the process of hiring, as employees, our sales representatives currently supplied by inVentiv. Our plan is for the conversion to be effective January 1, 2016. We will continue to receive back-office sales management and system support from inVentiv on a month-to-month basis. We are genuinely pleased to welcome our reps aboard, and we anticipate that the conversion will not meaningfully change our overall cost structure. Our Omidria marketing efforts are also yielding returns. In the near term, our advertising focus will be on OMIDRIAssure and the strength of our reimbursement. OMIDRIA speaker programs, both at national conferences and at local venues, have been well attended and effective in recording and recruiting new Omidria customers. At the most recent educational conference for comprehensive ophthalmologists, OSN New York, the uniform observation was that Omidria was the most referenced product throughout that conference. With respect to Europe, as we reported during last quarter's call, Omidria received approval from the European Commission to market Omidria in all EU member states plus Iceland, Liechtenstein and Norway. Similar to its broad indication in the U.S., Omidria in Europe is indicated for use during cataract surgery as well as other IOL replacement procedures to maintain mydriasis or pupil dilation to prevent miosis or pupil constriction and to reduce postoperative eye pain. We have established a European advisory board for Omidria, consisting of top thought leaders across Europe, and continue to strengthen our presence within the European Society of Cataract and Refractive Surgery. Levering our growing U.S. success, our strategy for Europe as well as that for other international regions remains to partner for the product's marketing and distribution. Turning to our pipeline. Let's first focus on our MASP-2 program. Our MASP-2 antibody, OMS721, targets the lectin pathway of the complement system, a key component of the immune response. Our current Phase II clinical program is evaluating OMS721 in patients with complement-mediated thrombotic microangiopathies or TMAs, a family of rare, debilitating and life-threatening disorders characterized by excessive thrombi or clots in the microcirculation of the body's organs, most commonly the kidney and brain. Our Phase II trial specifically is assessing OMS721 in atypical hemolytic uremic syndrome or aHUS, thrombotic thrombocytopenic purpura or TTP and hematopoietic stem cell transplant-related TMAs. The FDA has granted our 721 program both orphan drug status and, as announced in late July, Fast Track Designation. We remain pleased by the progress of the Phase II trial and by the participating physician investigators' confidence in OMS721 as evidenced by their ongoing physician-requested compassionate use program in which patients currently are being dosed with OMS721. Our Phase II TMA trial consists of a 3-level dose-ranging stage followed by a fixed-dose stage, which is expected to continue into 2016. In August 2015, we announced positive data from the mid- and high-dose cohorts in the dose-ranging stage of the Phase II clinical trial, with consistent and robust improvement in efficacy measures. As in the low-dose cohort, OMS721 was well tolerated by all patients in the mid- and high-dose cohorts throughout the treatment period. Chronic preclinical toxicity studies have been completed and demonstrated no safety concerns, allowing chronic dosing now in clinical trials. The most recent set of data from our OMS721 Phase II TMA clinical trial were obtained primarily from aHUS patients and one TTP patient. We have now also completed dosing for a hematopoietic stem cell transplant-related TMA patient in the high-dose cohort. This is a patient with a history of lymphoma for which he underwent stem cell transplant. This post-transplant course has been complicated by a number of life-threatening disorders, including platelet-transfusion-requiring TMA. Despite transfusions, his stem cell transplant-related TMA persisted and he was enrolled in our OMS721 Phase II trial. Following the 4-week dosing period, platelet count quadrupled, resulting in a count of more than 100,000. Haptoglobin level more than doubled and was normal. Plasma lactate dehydrogenase level, a measure of damage within blood vessels, decreased by 35% but still above normal. And schistocyte count remain at only 1. Throughout dosing with OMS721 and since completing treatment, the patient has not required any platelet transfusions or plasmapheresis. We are excited by these additional data, and strategically, we remain on track to discuss with FDA later this year or early in 2016 both the data from our Phase II trial in TMAs as well as plans for our Phase III program. In addition, investigator-requested compassionate use for OMS721 continues to be available to European patients with aHUS for whom it has been and will be requested. Given the positive efficacy and safety data in TMAs, we are currently expanding clinical trials to evaluate OMS721 in IgA nephropathy and other complement-related renal disorders. A chronic disease, IgA nephropathy is the most commonly diagnosed primary glomerular disease in the U.S. and in many parts of the world. 20% to 40% of IgA nephropathy patients will advance to end-stage renal disease within 28 years, and currently, no good treatment is available. More than the classical and alternative complement pathways, the lectin pathway is strongly implicated in the pathogenesis of IgA nephropathy. MASP-2 is the effector enzyme for the lectin pathway. So we look forward to evaluating OMS721, our MASP-2 inhibitor, in patients with IgA nephropathy and other renal diseases. Let's turn now to OMS824, our PDE10 inhibitor in development for the treatment of cognitive disorders, including Huntington's disease and schizophrenia. As previously reported, clinical trials evaluating OMS824 in Huntington's were suspended at the request of the FDA. We are pleased to report today that based on review of our submission of requested data, the FDA recently notified us that we are permitted to resume clinical trials in our Huntington's program, with dosing limitations. The dosing limitations are subject to removal, pending submission and FDA review of additional information. We are moving forward with the Huntington's program, and we'll generate additional data for further discussion with the FDA. Given that there was no active schizophrenia trial at the time of program suspension, the FDA will address the OMS824 schizophrenia program when we have a related trial protocol ready for initiation. Our preclinical programs also continue to advance. We are working to move one or both of our PDE7 inhibitor, OMS527; and our plasma inhibitor, OMS616, into the clinic either late next year or early in 2017. Our MASP-3 inhibitor program, OMS906, targeting the complement system's alternative pathway continues to make strides. We currently are optimizing our potent and functionally active antibodies against MASP-3 in preparation for scale-up in advance of clinical trials. MASP-3 is the activator of the alternative pathway. Together with our MASP-2 program, we now control inhibition of critical enzymes in both the lectin and alternative pathways of the complement system. With respect to our GPCR program, we continue to strengthen our intellectual property position, and a number of specific targets are advancing through compound optimization and evaluation in animal models of disease, including GPR17 for remyelination, GPR101 for eating disorders, GPR151 for neuropathic pain, GPR161 for triple-negative breast cancer and other types of malignancies and both GPR174 and GPR183 for autoimmune disorders, including multiple sclerosis. So that concludes our update on Omeros' products and programs. Before handing the call over to Mike for the financial update, I'd like to briefly touch on the topic of financing. As I mentioned earlier, Omidria unit sales grew substantially in Q3, and that trend has continued into the fourth quarter. Omidria sales revenue was already more than covering product-related marketing, sales and manufacturing costs and is now providing funding for the pipeline development. So now as I just said, Omidria, the program, is at least self-sustaining. We believe that the questions around reimbursement for Omidria have been answered both by the current status of Medicare and commercial coverage of Omidria as well as by our commitment to ensure that all cataract surgery patients have access to the product through OMIDRIAssure and the other programs that I described a little earlier. We expect the result to be continued growth of sales. To that end, we are in discussions to secure debt to provide a non-dilutive bridge to take us to cash flow-positive status, which we expect to reach by mid-2016. At this point, I'd like to turn the call over to Mike for a summary of our third quarter financial results.

Thanks, Greg. Revenue for the third quarter was $3.3 million, $3.2 million of which was Omidria product revenue. This compares to revenues of $214,000 for the third quarter of 2014, which consisted solely of grant revenues. Our net loss for the current quarter was $19.9 million or $0.53 per share, which includes noncash expenses of $2.7 million or $0.07 per share. This compares to net loss of $18.3 million or $0.54 per share in the third quarter of 2014. Now let me discuss a few more specifics. Reported revenue for Omidria in the current quarter decreased slightly from the second quarter. But as Greg has talked about, that doesn't really tell the story. The sale of Omidria by our wholesalers to the ASCs and the hospitals increased by 71% compared to the second quarter, while the net price per vial sold of Omidria was held constant. In other words, we did not discount Omidria to achieve this significant increase in wholesaler units sold during the current quarter. In addition, the increase in unit sales by wholesalers throughout the quarter has continued into the fourth quarter. Operating expenses for the third quarter were $22.6 million compared to $17.3 million in the same period of 2014. The increase was due to sales and marketing expenses related to the U.S. commercial launch of Omidria and incremental research and development expenses primarily related to our OMS721 clinical program. As of September 30, 2015, we had cash, cash equivalents and short-term investments of $35 million. And of the debt funding described by Greg and continued sales growth of Omidria, we expect that we will not require an equity financing to achieve cash flow-positive status. As we look towards the remainder of the year, we anticipate that our revenues will continue to increase due to the growing overall market acceptance of Omidria. In addition, we expect our operating expenses will also increase due to the advancement of our clinical programs, including OMS721 and resumption of the OMS824 Huntington's program. With that, I'll turn the call back over to Greg.

All right, operator, so I think then we can begin the Q&A if you have folks in the queue.

[Operator Instructions] And our first question comes from the line of Steve Brozak from WBB.

Obviously, what everyone's looking at is Omidria. And Greg, if you can go into as much color and detail, because you now have -- I should put -- or the way I'm looking at it, a greater sensitivity direct contact with sales. What can you tell us about the fact that you've got your own sales force coming in? And what can you tell us about how that's going to enable you to get future color visibility and product sales? And I've got a follow-up after that, please.

Yes, sure. I know we put a lot of information out there today in this call and in our earnings release, Steve. I tried to give in the prepared statement substantial color about the sales. I think in direct response to your question, I think that the hiring of the sales force from inVentiv, and again, I want to underscore that this is not a reflection in any way on inVentiv. InVentiv has been a very good partner for us. But I think that our bringing that sales force in-house speaks pretty clearly about what we think the opportunity and the growth potential for Omidria truly is. I think with respect to color, I don't know, I think that we've explained pretty clearly that the sell-through quarter-over-quarter from Q2 to Q3 increased 71%. It's not reflected in the sales numbers. That's frankly because, as I mentioned, we had about 5 weeks of inventory in the channel that we had to burn through in Q3 before we could even truly start logging sales in sell-in for Omidria. And then on the back end, where we previously had those 5 weeks, it largely evaporated. I think going forward, I expect that the inventories likely will be closer to where they stood at the end of Q3. Again, as we explained, clearly, because of the type of distribution model we're using, which is that single tier, there's no reason for our wholesalers to hold significant inventory. With respect to growth, I mean, this time, we actually provided specific kind of additional information on Q4. And what we said was the growth from September to October on the sell-through was 47%. So I think when we model all of this out and we see the response to Omidria and we overlay on that response, which continues to be strong and growing, we overlay on top of that the OMIDRIAssure reimbursement program, the strength in reimbursement that we've already demonstrated. And I truly believe that has been the primary source of resistance. It's, gee, are we going to get paid for this product? Well, what we've done now is expand with the introduction of OMIDRIAssure in October. We have expanded access to Omidria really to all patients, regardless of payer type. And that really does relieve concerns for the patients, but frankly, also for the physicians and facilities. And when you overlay that on the existing growth, we run those numbers, that's why we're comfortable in saying that by mid-2016, we expect that we'll be cash flow positive -- or the company. Remember that where we currently stand with Omidria today, the program is cash flow positive unto itself.

In going back then, you obviously made sure that you've had painstaking detail on how physicians and the programs are being reimbursed. So obviously, that's a hurdle that no longer has to be addressed. Just one closing question. A clinician patient uses Omidria. Given your sales force transparency and everything else, is there any reason why someone that used it would -- a clinician would use go back to something that candidly is no longer what can only be considered now an industry standard or an industry care standard? What would -- would there be any way -- or someone would go back after having used Omidria?

Well, first, let me address one thing you said, which is the OMIDRIAssure program is going to help with those reimbursement issues. I think again, there is going to be initially some skepticism about something -- a program like that, if it looks too good to be true, it must. So I think there's going to be a little bit of that, that we overcome but I think that's going to dissipate quickly as people see that -- and as facilities and surgeons see that what is actually promised by the program delivers on that promise for the patients. With respect to your question about would there be any reason once a physician uses Omidria to go back to something else, I'll put the disclaimer upfront that obviously, there's a self-serving component to my response. But genuinely, I don't think so. You've got a product that, by uniform reports and now multiple, multiple reports, really is, we are told, works better than anything else that is available. It is also the only FDA-approved product on the market. There -- I think all physicians, all surgeons, all facilities understand that there is potentially liability in not using an FDA-approved product when there is one available. Jane Axelrad the Deputy Director of Policy at the FDA, has actually made that statement, that where there is an FDA-approved alternative, that is what should be used. So I think you've got the issue here where you've got the only FDA-approved product. It works very well, not only in routine cases, but in IFIS, in pseudoexfoliation, with femtosecond laser, really anywhere it's used. And surgeons continue to look at different uses for it, it seems to work quite well. And you are fully reimbursed for the product. So when you put all of that together, it is hard for me to justify why one would switch back, but again, with the proviso of that self-serving component to the response.

Well, look, obviously the next quarter and the quarter after that will prove that the self-serving statement is more than just that.

And our next question comes from the line of Liana Moussatos from Wedbush Securities.

Do you see changing to reporting based on sell-through instead of sell-in at some point? And in 2016, are we going to see more 721 data and initial 824 data?

Yes, in response to your first question, we really don't see switching to sell-through from sell-in. Sell-in, as you know, is the convention for reporting. It's just unfortunate that it presents some difficulties early in the launch, as the wholesalers really try to dial in specifically how much inventory they want to hold. I think that, that will sort itself out, and I expect that these problems or these -- not even problems, but these challenges will dissipate. I think that there will be additional data on 721 and potentially 824. Again, that's going to be dependent on study design for 824. But we'll provide additional data on our programs as they are available. We provided additional data today on 721. We think those data are, again, pretty stellar. 721 continues to deliver. And we're excited about expanding 721 into other indications. The IgA nephropathy area is ripe for a lectin pathway inhibitor. If you look at the biology, and I'm sure I'm telling you something, Liana, that you already well know. But really, the biology around IgA nephropathy is most closely linked to the lectin pathway. And MASP-2 is the effector enzyme. We control that. Certainly, that seems to be an attractive area and one in which the biology would certainly support that more tightly tied to lectin than either the classical or alternative pathways in the complement system.

And our next question comes from the line of Serge Belanger from Needham.

This is the Nicole [ph] calling in for Serge Belanger. Can you give us an update on the commercialization plans for Omidria in Europe? Is any of the pricing and reimbursement work underway? And can you give us any indication on either of these issues that can help us size the European market opportunity for Omidria?

Sure, sure. We haven't discussed yet pricing and reimbursement work. We'll update that as that's appropriate. With respect to partnering, we don't routinely -- in fact, as a rule, we don't discuss partnering efforts. We will discuss partnering as those are ready to be announced. But with respect to our efforts there, clearly, our efforts are focused on U.S. U.S. success, we believe, will drive European success as well. And when we're talking about European, I think that we really need to think more broadly than just Europe. We're looking at, and certainly interested in, partnering in other regions of the world as well. And I think at this point, Nicole [ph], that's really all that I should say about our partnering efforts outside of the U.S.

Got it. Fair enough. I have 2 other quick questions for you. Other than Par Pharmaceuticals, are you aware of any other generic filers for Omidria?

Good question. We are not, we are not. Yes? I'm sorry.

Oh, I have another follow-up question as well.

No, that's fine.

And how many patients are being enrolled in the fixed-dose part of the ongoing Phase II study for OMS721? And when should we expect to see data for that?

Yes, that's what we currently have planned, and this has undergone a modification given the positive data that have come out of the dose ranging. But we're really looking at a total of 80 patients in that fixed dose, which would be 40 aHUS and 40 derived from TTP and stem cell transplant related TMAs. That second 40 is, just to be clear, is a total of those 2, meaning TTP and stem cell transplant related TMAs.

And I'm showing a follow-up from Liana Moussatos from Wedbush Securities.

I just wanted to make a comment. I was at ASN last week. And I went by the aHUS advocacy group, and they were very enthusiastic about OMS721, especially subcutaneous dosing. I just wanted to make that comment.

Yes, they are. And we are in discussions with them. There's increasing excitement, I think, in the aHUS community about OMS721, and that's gratifying to see. Again, there is work to be done between here and there. But I think at present, we're really quite pleased with what we're seeing coming out of the 721 program. And now with 824, also coming off of clinical hold, we're eager to get that program up and running again.

[Operator Instructions] And our next question comes from the line of Austin Hopper from AWH Capital.

This is Chip Saye calling in for Austin. I have a couple of questions. I want to say, you mentioned AMSURG last time. It sounds like a -- congratulations are in order for growing that relationship. I just wanted to ask you, how are you guys selling to the AMSURG docs? Is it top-down or you sell to senior management and then they require the doctors to use it? Or is this a situation where the reps sell the product to the doctors on an individual basis?

It's a little bit of a blend, and let me explain what that really means. The reps are still selling to the facilities and to the docs at the AMSURG facilities. But what we enjoy is the support of the top management in the ophthalmologic side of AMSURG. They understand the value of the product. They understand -- excuse me, the potential liabilities in not using an FDA-approved product. And so there continues to be support from AMSURG management on the ophthalmology side, which does then move down to the facilities. There is not, however, and AMSURG does not -- the management of AMSURG does not dictate practice. But what it does is clearly open the doors, smooth the process, the inroads to getting into those facilities and then making the sales there. Is that helpful?

That's very helpful. I just wanted to see if I can follow-up. How many doctors are at AMSURG? And if so, if you know that number of ophthalmology docs, and then how many of them are currently using Omidria?

I don't currently have those numbers with me. I'm sorry, Chip. That's a little more detail than I'm currently prepared to go.

Okay. And then just on the same front, just trying to model for Q4. Q4 should show -- should reflect demand in Omidria though, right?

I think so. I certainly expect so. I mean, we're already seeing it. And I think I want to be careful because I see that -- the tendency is for folks to get out ahead of themselves with respect to expectations, and then when those expectations are not met, sort of summarily label a launch as having difficulty, when in fact we see it as something very different. We're seeing it as every day those numbers are increasing. Every day, docs are converting. As I said, we've got, right now, 30 of the top 100 volume producers in the U.S. who are using Omidria. We need to continue to have them expand their utilization across their practices. But once you're in a practice, the stickiness for the product is very good. And so the idea here is get in, get them using Omidria and then expand that through OMIDRIAssure, through confidence in the reimbursement process that they expand to really all of their cataract surgery patients. So the question is, what's the base? How many accounts can we generate? How quickly can we generate those accounts? I think we're doing a good job. I think that really, if you look at the responsiveness of the team to any issues that arise, including the reimbursement one, which is a wonderful case in point. I mean, feedback came, docs were concerned about reimbursement. We moved quickly. We created OMIDRIAssure, while also clearly working on the reimbursement, the coverage from commercial payers. So largely, those questions have been answered and answered resoundingly. So I think that all of the pieces are in place. The foundation is there. We just need to continue to mine it, and I think we're doing a good job of that.

Yes, I would just say it seems like you've taken away most all of the reasons for someone to say no, just in 2 quarters or so.

I mean, if you looked at the commercial coverage and you look at the limited time frame in which we've had to establish that commercial coverage, frankly, that's very impressive. If you look at the response from the clinicians, if you look at their repeated statements that they aren't needing to use pupil dilating or pupil expanding devices, that their operating times appeared to be faster, that their days are smoother, that their cases are more consistent, all of those things build. And as I said, we were just at OSN, OSN New York. And Omidria was -- and I was present there, so while reported to be the most talked about product, I can attest to it, frankly, being the most talked product there. Even folks who weren't giving talks on Omidria were talking about Omidria.

And I have one more question, just trying to think ahead toward revenues in Q4. You mentioned on Q2 OMS103, when the licensing -- license with Fagron, you said your sales may be expect related this year. Is that still on track or no?

No. As I think is in the Q, based on our conversations with Fagron, we do not expect that OMS103 sales will initiate in the fourth quarter. I mean, I don't think that this is terribly surprising. Those time lines were aggressive. But we are in discussions with Fagron and we will comment as appropriate on that.

And our next question comes from the line of Thomas Yip from FBR & Co.

I'm just wondering, given the dedicated sales force for Omidria, what additional cost or perhaps a lower cost will be incurred going forward?

I'm sorry, can you repeat that question, Thomas? I may have missed a part of it.

Sure. Since you guys are switching to a dedicated sales force rather than outsourcing the sales force for Omidria, just wondering how much it would cost in addition or maybe less going forward.

Yes. We do not anticipate, frankly, any increase in cost structure associated with bringing that forward -- that sales force in-house. We looked carefully at that. We built conservative estimates about that. And I think that I will stop with simply we don't expect that, that's going to cost us anything more than we're currently spending. Again, the thought [ph] to do this was not one of cost. The reason is really, again, underscoring, I think, our belief in the success of Omidria, and frankly, the data that are confirming that belief. And I think it's appropriate now to make that an in-house force. Remember that the sales force was dedicated to Omidria. But there is a difference when you bring that sales force in-house and they are really part of Omidria, they are sharing in the upside of Omidria and Omeros in general. That can have a positive effect in general. And I think we're looking to that and I fully expect that we manifest that going forward.

Okay, understood. That definitely makes sense. You definitely get more visibility with your own sales force in-house. So I guess switching gears to 824. You mentioned that the dose limitation that the FDA will be -- that the FDA will put on could be removed in time. But just wondering, still will you -- do you plan to start a Phase II trial before that limitation is removed? And if so, what does this dose limitation represent in the grand scheme of things?

Yes. In answer to your first question, Thomas, yes, we do expect to begin the trial on a schedule independent of the removal of those dose limitations. Remember, we are currently designing a Phase II program to move ahead with 824 in Huntington's. If we, in parallel, generate the data that satisfies the FDA, great. The dosing limitations would be removed and we would continue to move ahead. If, for some reason, it takes us longer, we would not hold up the Phase II clinical trial to achieve removal of those dosing limitations. Does that answer your question? I hope I did. If not, let me know.

Yes, that makes sense, because I was just wondering -- I mean, obviously, we have limited understanding of what this dose limitation, the exact details of it. And I'd assume you can only tell us so much, so I was wondering whether it limits your plans for Huntington's in any way at all.

I think that we clearly have a path forward in Huntington's, and we're going to be pushing to get that going. And so that's I think how I view it. That's how our team views it.

Okay. That sounds good. Just a final question. It sounds like you may be considering restarting a schizophrenia program for 824?

We're discussing that. As I mentioned or as I think I laid out in the statement that we aren't off -- technically off of clinical hold on schizophrenia. That is not -- that has not nothing to do with the merit of being off clinical hold. It is simply that we did not have an active protocol. And so there's really nothing for that division of the FDA, the psychiatry division, to respond to. So as soon as we have a protocol in hand, we will go and have the same discussion we had with the neurology division, which lifted the clinical hold on the Huntington's side.

And our next question comes from the line of Doug Adams from Tocqueville Asset Management.

My questions have already been answered.

But what was the question?

I was going to ask about what gave you confidence that you would reach cash flow breakeven by mid-year and using debt financing. But I think you've commented enough about what you're seeing in terms of physician uptake and your reimbursement coverage to accelerate the launch.

Yes. I think clearly, we're looking at growth rates. These are our best estimates, but we see the uptake, we see the responses and we see that we continue to knock down any barriers. So as I think we discussed earlier, the product has clearly recognized benefits. And when you remove any of the challenges, you're really left with those benefits. And I think that physicians, facilities recognize and will continue to recognize that equation.

And our next question comes from the line of Deke Lundquist from UBS Financial Services.

This is a question for Greg and Mike. I just want to pick up on something you all talked about as far -- I guess, it's a little bit like the last caller. You're really giving us guidance in a small way for the first time. And if I'm right, Mike, the expenses on a quarterly basis are in the ballpark of $20 million, $22 million. Is that accurate?

Yes. That's what the expenses for the third quarter on a full OpEx was $22.5 million, and we had $2.7 million of that, that's noncash. So the net cash expense was close to $20 million.

Okay. And I know -- I realized there's a variable component to that. But I guess what we're -- what you're kind of pointing us towards is that by midway 2016, we can expect Omidria potentially to be covering all that cost.

Yes.

And our next question comes from the line of David Hahn [ph] from M.S. Howells.

Greg, what were we paying Ventiv previously?

Well, we haven't put that information out, David.

Yes. There was a number in the K, you had indicated in the previous K that you had a contractual agreement with Ventiv, and there was a number in there. So I do recall the number, I just don't have it in front of me. But you disclosed...

Well, let me turn to Mike. Mike, what is -- what do we have there?

So the overall cost for inVentiv was about $550,000, $560,000 a month and then there was some operating costs on top of that. So those kind of numbers. It's in the commitment footnote where you can look in the Q and get the exact detail.

Excellent. And then how many sales representatives were you considering hiring?

Well, the number of -- the total reps that we had initially with inVentiv was 40. And we're not...

So -- and I might have misunderstood -- you're not hiring the Ventiv salespeople. You're going to hire your own sales force, correct?

No. A number of those, David, we are converting from inVentiv to ours. We're not bringing all of them over. We're bringing over a subset of that number and are expanding around those to fill those territories -- or those whom we will not be bringing on.

But you feel comfortable that the cost for your own sales force and your own sales representatives in-house will not exceed the previous inVentiv costs?

We've run the numbers and the total cost of the conversion and the total cost of that sales force, we believe, will be effectively the same as what we've been spending through inVentiv.

Excellent. And what do you feel the primary advantage will be of bringing those people in-house?

Well, I think a couple. One, certainly, if you want to keep -- you want to retain good reps, many of those really want to work within a company structure, and I think that, that's an important -- certainly, an important consideration in what we've done. I think that it allows us to be directly on top of what's happening in the field, which we already are through the inVentiv program. But I think that the time now has come to bring that group in-house. Also, we're looking at product down the road, David, and I think given the success of Omidria, given where we see the pipeline going, we think currently, it's time to bring that group in-house.

Is there another product you anticipate being able to sell through the same sales force?

We've not discussed that. But as you know, we are always looking at ways to lever the assets that we have at Omeros. And certainly, one would think that if you have a captive sales force, it would make sense, if possible, to lever that to additional products.

Okay. That makes some sense. Let me ask a couple of questions about Omidria. You've done a fantastic job of gaining insurance coverage for Omidria. But Greg, I'm not so certain that insurance is the issue with Omidria. How many actual procedures were done in the quarter?

Using Omidria?

Yes.

Yes. We've -- that, I am comfortable, David, that we have not released.

Okay. So but if we -- if you did $3 million of revenues, give or take, and it's about $500, we can kind of come to a guess of what the total number of procedures were. I just -- I keep looking, and from my numbers, Greg, we didn't get to 10,000 procedures in the quarter. And I'm looking at a quarter where there were probably, just based on the annualized surgeries, which are somewhere in the area of 3.5 million to somewhere in the low 4 millions, they should be running about 300,000 surgeries a month. So from my perspective, in that -- in the quarter, we probably had close to 900,000 surgeries and less than 10,000 of them used Omidria. So my concern is not on the insurance side, my concern is, what are you doing to get the doctors more motivated? And I recognize you referenced the fellow who was a detractor, who you brought in, and he now strongly endorses the product. But what are you doing to make contact with the docs out in the field corporately? Because that seems to be where the issue is, it's a demand issue, it's not an insurance issue. So I'm curious to know what are you doing corporately to incentivize demand? And I hear the legal issues with respect to using a compounded product. But I still remain concerned about the ultimate users of your product. The docs make that decision, and if they decide they don't want to use the product, you can have insurance from everyone, but you don't make sales. So tell me what you're doing to enhance the Omidria-doc relationship aside from insurance.

Yes. Let me address an assumption that you made that I think is inaccurate. In ophthalmology, it is very interesting, it's actually -- it was relatively surprising, certainly, news to me. But the gatekeepers are really not so much the ophthalmic surgeons, the gatekeepers for the facilities are the administrators. So I think your assumption that somehow this is a physician demand issue, I think, is just, frankly, inaccurate. What we are seeing is that the large resistance is coming from administrators, even with their docs sort of pounding the table, saying they want to use Omidria, David, we have the administrators who are concerned about reimbursement and are saying, "Look, these surgeons have hired me to make sure that the -- that their facilities and/or their practices are profitable. Omidria carries the risk, if we don't get reimbursed, of negatively affecting that primary objective." So that's really where the major -- where the primary decision-makers for a large number of these facilities reside. It's in the role of the administrator or in the role of the CEO, whatever the term is that a facility or practice uses. So having said that, let me tell you what we are doing to the docs or for the docs, with the docs. There is consistent outreach to physicians, not only through local venues but nationally, at conferences. I mean, we have docs talking to other docs. We have docs writing articles. We have docs speaking and, again, in conferences and local venues. I mean, we're doing all of the things that you would expect and that are done in reaching the physicians. It is a little different in the ophthalmology world, at least in the cataract surgery world. I don't want to generalize because I don't have direct working knowledge in any other sector of ophthalmology than in cataract surgery. But the drivers here are largely the administrators. And those are the ones who are worried about reimbursement. Those are the ones who are worried...

So can you identify specific situations where an administrator didn't want to allow the doc to use the product and, subsequently, you have overcome that based upon the insurance? Because, Greg, I've done extensive work with the docs, and I must tell you, I couldn't disagree with your response more. In fact, many of the docs that I speak to, they don't even mention reimbursement. They talk about the product.

They talk about -- I'm sorry, the what?

They talk about specifically the product. They talk about the cost of the product. They talk about the benefit or the perceived benefit. And I still believe there is a question in many of the physicians' minds whether or not the product is worth what they have to pay. And I continue to believe that is the primary issue. And as I suggested, you had almost 1 million -- or you should have had close to 1 million procedures in this quarter, and we're getting a tiny, tiny, tiny percentage of those. If your thesis is accurate, obviously, we will compound quarterly the results. As the docs have their reimbursement, they will be more comfortable using it and they should use it more frequently, so we should see a compounding of results. But I still think that you've done a fabulous job on the actual reimbursement side, but the sticking point doesn't seem to be reimbursement, at least from my work. So that's why I specifically asked what you're doing to address the individual physicians.

Again, David, I mean, I respect your opinion, but you are wrong. We're the ones on the ground, we're the ones doing this. I can give you a long list of examples of facility administrators who overruled their physicians and said no and have subsequently changed their minds because of the Omidria reimbursement. So that's -- let me finish, David. Let me just finish. And then I'm happy to -- I mean, I think that, at some point, we've got to take this discussion off-line because there are -- I think there are others in the queue still. But I mean -- I'm just addressing it, which is that's our experience. I'd be interested in -- when you and I talk, we ought to talk about whether those surgeons that you're referencing -- and remember, the surgeons that we're targeting are the top producers. So I'd like to talk about which surgeons are you referencing, and have they used the product? I mean, I just gave you a great example and, in fact, you know him because you and he have spoken.

You know I spoke to that doctor and you know I conveyed to you his view of the product, and I was thrilled with your ability to get him to not only try the product but to convert him. And that's the type -- that is tremendous.

That's not the only conversion. And I think that, I guess, that kind of answers, in my mind, really, your question. What are we doing? Well, we're doing the same thing we did with that surgeon. And that's successful. But the primary -- look, let's very quickly run through just so for everybody -- everybody's benefit, what are the potential objections? One is clinical. I think that's been resoundingly answered to anyone, David, who uses the product or anyone who reads articles on the product or anyone who addresses it with an open mind. I really don't -- I mean, you can't look at the data unless you say I don't believe data. I think that that's kind of an untenable position. So I think that the clinical issue is resolved. I think the one that you're raising is, "Gee, somehow this is just -- the cost is too much." Part of that translates to, "I don't think I'm going to get paid for it." That distills down to a reimbursement issue. We've addressed it. The other is, "It's somehow, philosophically, I think the cost is too high." I certainly don't think that's a major driver. That may be for some, David. But as with all surgeons and all products, very few surgeons want to be first, no surgeons want to be last. And I say that as one. So I think, actually, we've got our finger on the pulse of what's really happening out there. We're living it every day. If you look at the -- I can explain your stated concern about numbers simply by reimbursement. Docs want to make sure, facilities want to make sure, they get reimbursed before they are ordered. That's why we talked about the sales cycle. That's why we talked about it last quarter, which I'm not sure everybody registered. We made it very clear last quarter that the sales cycle was running about 12 weeks, maybe longer. And I'm not sure that registered. And then we came back this quarter and said that sales cycle has reduced to 6 weeks. I hope that registers. And we've also said that, moving forward, it appears the sales cycle is further reducing. So I do think that the primary resistance here has been reimbursement. That's what our data show, that's what our experience show. And I've really got to rely on that. I appreciate and respect your opinion. I really do. But I think [indiscernible].

That's what makes the market. You answered it -- I appreciate your answer, I will come to you off-line and we can discuss further. And go ahead, we'll let someone else ask a question. I may have one follow-up for you.

And we have a follow-up question from Steve Brozak from WBB.

Yes, Greg, I mean, that was a bit of a surreal conversation because we have a staff of physicians that we work with and we also reach out into the field, and I just want to go over one specific topic here because, obviously, physicians want to do what's right, but at the same time they also have to make sure that they're reimbursed for what they're doing and there isn't a situation where they're at risk. But you also have people that are checking to see about what the pricing is, what reimbursement is, in addition to the physicians. And specifically addressing the idea of that, you're looking at a situation where physicians are going to be price-sensitive to something when they're getting the best possible value, they're doing something clinically right. Are all those points accurate and it now becomes a situation of just making sure that the system is familiar with what you've got? And I have a follow-up after that, please.

We believe so. The data that we have coming from us in the field is, really, are the data that I discussed. I'm giving it to you as directly, as forthright as I can. I mean, those are the data we're dealing with. If those data change, we'll accordingly change our approach. But right now -- look, you can never paint with a broad brush what every surgeon or every facility's resistance point may be. But far and away, we believe that it's the reimbursement piece. And when that starts to fall, docs start to realize this product actually does clinically what it's billed to do.

So looking at this, and having seen literally hundreds of product launches, we're now seeing something that is similar to other product launches, it's just a function of making sure that you work out and streamline the process. Is that an accurate description? And I'll hop back in the queue, obviously, since this call is going longer than most people usually have.

I think -- yes, I think that's correct, Steve. I think that we need to continue to work it. But I -- the growth rates are, frankly, I think, reflective of the success of reimbursement. And I think if you look at the reimbursement cycle, if you look at the sales cycle, it all fits together. And sort of if it walks like a duck, quacks like a duck, looks like a duck, it's a duck. And I think that's what we're seeing here.

[Operator Instructions] And we have a question from the line of Norman Hale from Stifel.

My question -- I have a couple questions. On your 721 product, do you guys have an approximate time line for the completion of the Phase II and the initiation of the Phase III human clinical trial?

We haven't provided that yet, Norman. And I think at this time, we probably shouldn't speak to that. We'll provide all of those time lines as we move forward. What we have said is that we expect to be at the FDA talking about the end of Phase II, initiation of Phase III studies at the end of this year, early next.

And Alexion Pharmaceuticals, of course, they have the Soliris product, which is the approved product for TMAs currently. And you guys believe that your product has some advantages in terms of safety, et cetera. The work that you're doing with MASP-3, that is to broaden the number of diseases that you potentially can treat with these products, is that correct?

Yes. And actually, MASP-3 is targeting the activator of the alternative pathway, which is a different pathway than is targeted by our MASP-2 inhibitor. MASP-2 is targeting the lectin pathway. MASP-3 is targeting the alternative pathway. So yes, it does address a different -- in most cases, there is some overlap, Norman, but I think that, in general, it's potentially a different set of diseases. So what it really does is expand our footprint within the complement space. There are 3 pathways, the classical, the lectin and the alternative. We now control the effector enzyme of the lectin pathway and we control the activator of the alternative pathway. That is a stake within the complement system of which we're quite proud. And I think it's going to reward all of us handsomely going forward, at least those are my expectations personally.

I hope you're correct, and I think you will be. Next question on OMS824. Prior to the hold on the clinical trial, the data received, were there any safety issues that you guys encountered with 824?

No.

No. Okay. And was there enough data in order to drive any kind of information relative to the efficacy of the product?

We haven't spoken to that. I think, though, that as one sort broadens the field of vision here and you look -- you know that Pfizer is advancing with a PDE10 inhibitor. A smart company looking at a mechanism. I think that, that does tell us something. And Pfizer has a twice-a-day dosing. Omidria, as you know -- I'm sorry, OMS824 is once a day. So we are excited about that program, and we're very pleased to be off clinical hold.

Well, absolutely. I hope this product makes it all the way the finish line. One last thing on 824. I know you haven't started any program relative to the schizophrenia therapy. But on preclinical work, have you discovered any differentiation between what your product -- how your product may function versus the prior-approved [ph] products that are used for schizophrenia?

Yes. They are certainly working theories on that, Norm, but I think probably those discussions are best held off this call, not because I don't want to speak about them, but I just think we're going to be going into detail that will cause many to glaze over and it'd probably better to just address those specific questions off of this call.

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

Okay. Thank you, operator. Thanks for working through all of those calls, much appreciated. So as you can see, that really wraps up our call for today. I want to thank everyone again for taking the time to listen in today. With Omidria sales increasing, additional positive data and the TMA Phase II trial and the 721 program further expanding, OMS824 headed back to the clinic and the rest of the pipeline advancing, we really do look forward to bringing you more good news on our progress throughout the remainder of this year and into 2016. As always, all of us at Omeros appreciates your continued interest and your support. Have a good afternoon, everyone.

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