Omeros Corporation (OMER) Q3 2017 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 one week from today. I'll turn over the call to Jennifer Williams, Investor Relations for Omeros.

Good afternoon and thank you for joining in 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. Gregory Demopulos, Chairman and CEO of Omeros, will take you through a corporate update; and then, Michael Jacobsen, our Chief Accounting Officer, will provide an overview for 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 afternoon, everyone. We appreciate you taking the time to join us on the call today. During the third quarter, OMIDRIA sales continued to climb. Net revenue in the third quarter were $21.7 million, an increase of 26% over the second quarter of this year and up 92% compared to the third quarter of 2016. Units sold to our wholesalers, or sell in, also increased substantially, 26% quarter-over-quarter and 125% year-over-year. We continued to see growth across all dimensions of our market during the third quarter. Sales increased meaningfully in both ambulatory surgery centers and in hospitals. Market penetration of OMIDRIA also increased in both breadth and depth, with a number of purchasing facilities expanding 8% versus the previous quarter and the average number of vials purchased per facility up 12%. The third quarter is historically one of the weaker quarters for cataract surgery volume across the country, yet OMIDRIA sales grew rapidly. This sales momentum is further accelerated into the fourth quarter. Based on sales data over the past several weeks, annualized net revenue from OMIDRIA is running in excess of $90 million. Several factors are contributing to the growth of OMIDRIA. First, doctors are becoming more steadfastly confident in the benefits that they and their patients experience with OMIDRIA. These benefits have been further demonstrated in a number of additional well conducted investigator initiated clinical studies all of which are in various stages of manuscript preparation or review by peer reviewed journals. The studies, uniformly show the superior performance and outcomes of OMIDRIA compared to investigators' previous standard practice, including epinephrine and compounded products across traditional surgery cases, femtosecond laser-assisted procedures and high-risk cases such as intraoperative floppy iris syndrome. Second, there is growing discomfort and dissatisfaction with alternative products, including those obtained from compounding pharmacies. Epinephrine that contains preservatives which are toxic to the eye is no longer approved by FDA for intraocular use. This leaves only one FDA approved epinephrine for use in ophthalmic surgery, and the supply of this epinephrine is unreliable with frequent interruptions nationwide. In addition, the public reporting of severe complications, including blindness, together with the associated lawsuits targeting use of compounded products during cataract surgery are causing surgeons and facilities increasingly to recognize not only the significant clinical benefits of OMIDRIA, but also the importance of the protection that our drug safety profile affords to both their patients and their practices. Third, increasing confidence in reimbursement is also driving broad expansion of OMIDRIA use. Surgical facility administrations are learning that they are able to obtain reimbursement for OMIDRIA for an increasing number of their patients. And a growing number of ASCs are incorporating OMIDRIA into their standard practice for cataract surgery. Our consignment accounts also continue to expand ensuring that the product is on hand and ready to go whenever surgeons want it. Hospital chains and corporate networks have also begun to adopt OMIDRIA, and we expect this trend to continue, streamlining access to the drug for member institutions within their respective systems. As we've previously reported, our supplemental NDA supporting the expansion of the OMIDRIA label to include use in children is currently under review by FDA. The paediatric study was conducted according to FDA's written request, and we therefore anticipate that this submission will result in an additional six months of exclusivity for OMIDRIA. With the commercial success of OMIDRIA, several generic manufacturers, namely Par Pharmaceutical, Sandoz and Lupin, have taken steps to enter the market with a generic version of OMIDRIA. Omeros has filed patent infringement lawsuits against all three. We have already gone through trial with Par Pharmaceutical in the United States District Court of Delaware. Following that trial, and before the judge issued his decision, Par approached us with a settlement offer. We subsequently negotiated and settled with Par on very favorable terms to Omeros. The terms of the settlement agreement can be found in our previously filed 8-K and in today's filed 10-Q Here are the highlights. One, Par is prohibited until April 1, 2032, or as detailed in the settlement agreement, from launching a generic version of OMIDRIA. This is almost 15 years from now. Our longest running Orange Book-listed patents for OMIDRIA expire about 17 months later on October 23, 2033. Two, as part of the settlement agreement, if its generic version of OMIDRIA eventually enters the market, Par is required to pay Omeros a royalty of 15% of net sales of that generic product until the latest expiration of any of our U.S. OMIDRIA patents. Three, Par acknowledges and confirms the validity of each and every one of the OMIDRIA patent claims challenged by Par. Four, this settlement removes the specter of any appellate case, which almost certainly would have followed a victorious court ruling for Omeros and would have required considerable expenditure of time and money. For this reason, we believe that the settlement outcome is highly favorable to Omeros and our shareholders, arguably even better than a court victory, and affirms our belief in the strength of our OMIDRIA patents. With respect to Sandoz and Lupin, at Omeros' request to the court, these two cases were consolidated into a single legal proceeding to be held, as was the Par trial, in the U.S. District Court of Delaware. The consolidated trial is scheduled to begin in the Delaware Court in mid-2019. As many of you know, OMIDRIA currently has pass through status, which allows CMS to reimburse for the drug separately. In other words outside of the package procedural payment for Medicare patients undergoing cataract surgery. Pass through for OMIDRIA is slated to end on January 1, 2018. If these were to happen and there were no avenue remaining to restore separate payment for OMIDRIA in Medicare patients, our pricing for OMIDRIA would likely eventually decrease. While we are confident that we could generate significant OMIDRIA revenues under such a package scenario, we continue to pursue ongoing separate payment for OMIDRIA, both through CMS and legislative routes. This could occur by extension of the pass through period or by some other means. Patient access to innovative drugs and patient safety are important to both CMS and to Congress. Pass through extension is good policy, enabling physicians and patients to access outcome-improving drugs that otherwise would not be accessible. And there is strong bipartisan and bicameral support. Funds already exist within the pass through program to pay for such an extension. While there are no guarantees, we remain optimistic that pass through extension or some other means of securing continued separate payment will occur this year. So today's quarterly report on OMIDRIA shows continued double-digit quarter-over-quarter and triple-digit year-over-year sales growth. During the third quarter, OMIDRIA revenues largely funded our operations and pipeline development. Our cash used in operations was $11.2 million. If you exclude $5.5 million of increased OMIDRIA accounts receivable, cash used in operations during the third quarter was about half this amount. Let's turn now to our pipeline, starting with our franchise of complement inhibitors, OMS721 and OMS906. OMS721, our lead MASP-2 antibody, targets the lectin pathway of the complement system, a key component of the immune response. We have three OMS721 clinical programs currently underway: a Phase III program in atypical hemolytic uremic syndrome, or aHUS; another Phase III program in immunoglobulin A, or IgA nephropathy; and a Phase II program that we're working to advance to Phase III in patients with hematopoietic stem cell transplant-associated thrombotic microangiopathy, or TMA. Our Phase III aHUS program is targeting enrolment of approximately 40 patients internationally. Based on discussions with U.S. and EU regulatory agencies, the Phase III clinical program consists of an open-label clinical trial with only a single arm. In other words, no control arm. OMS721 treatment consists of a simple, two dose intravenous loading regimen in the first week together with 26 weeks of subcutaneous dosing. Our 40 patient target enrolment could provide full approval in Europe and satisfy requirements for accelerated approval in the U.S., with another 40 patients required for FDA's full approval. To date, we've received orphan drug designation from the FDA for TMAs broadly, including aHUS, and have also been granted FDA's Fast Track Designation for the treatment of patients with aHUS. Within our OMS721 franchise, we're also advancing our Phase III program in patients with IgA nephropathy, the most common primary glomerulonephropathy globally. IgA nephropathy is responsible for up to 10% of all dialysis patients. In the U.S. alone, an estimated 120,000 to 180,000 patients have this disease, with a larger number in Europe and larger still in Asia. Up to 40% of IgA nephropathy patients develop end-stage renal disease, a life threatening condition, within 20 years following diagnosis. There is no approved treatment for IgA nephropathy. Dosing of OMS721 for IgA nephropathy is expected to be episodic. In August, we announced that OMS721 was granted orphan designation by FDA for the treatment of IgA nephropathy. The benefits conferred by orphan designation include substantial cost savings and tax credits as well as seven years of market exclusivity following drug approval. Last weekend, at the annual meeting of the American Society of Nephrology, data were presented from extended follow-up of the patients treated in the successful Phase II clinical trial. The Phase II trial consisted of 12 weeks of OMS721 treatment and six weeks of follow-up, during which clinically meaningful and statistically significant reduction in proteinuria was seen. After completing the trial, patients were followed using investigator practice standards. Data on these patients are available up to one year after dosing with OMS721. Three of the 4 patients with IgA nephropathy maintained partial remission for up to 1 year post OMS721 dosing, with urinary albumin-to-creatinine ratios remaining reduced 76% to 86% compared to baseline. Estimated glomerular filtration rate, or eGFR, was also assessed. A measure of renal function, eGFR can often take years to show improvement, yet improvement in eGFR was observed in three of the four patients in the relatively short post trial follow-up out to one year. Post treatment, eGFR increases ranged from 7 to 17 milliliters per minute per 1.73 meter squared relative to baseline values. The patient with the worst baseline kidney function showed an improvement in eGFR of 57%. As with every clinical trial of OMS721, the drug was well tolerated. There is no approved treatment for IgA nephropathy. OMS721 is the first and only drug to receive FDA's breakthrough therapy designation for this disease. Following receipt of breakthrough designation, we met with FDA to discuss the most efficient path to approval of OMS721 for IgA nephropathy. The meeting included FDA representatives from the Review Division as well as from the Office of Drug Evaluation I and covered key expectations related to the Phase III program and plans for ongoing communication throughout development. FDA's minutes from that meeting clearly state the following: One, a single successful Phase III clinical trial would be sufficient for approval. Two, patients in the trial will be adults with biopsy-confirmed IgA nephropathy, proteinuria greater than 1 gram per day and eGFR greater than 30 ml per minute for 1.73 meters squared. Three, a meaningful treatment effect on the primary endpoint of proteinuria could result in approval. Four, depending on the size of the effect on proteinuria, either full approval or accelerated approval is possible. Five, even a meaningful effect on proteinuria in just a subset of patients with high baseline proteinuria could provide the evidence needed for full approval. Six, if full approval is granted based on reduction in proteinuria, eGFR will be followed as part of the safety assessment. In addition, any effect of OMS721 on eGFR is likely to result in additional label claims for the product. Finally, seven, if based on the effect on proteinuria, accelerated rather than full approval is granted, marketing of OMS721 would be allowed, during which time confirmatory data on long-term effects of OMS721 on eGFR would be collected. These eGFR data, if satisfactory, would then form the basis for full approval. Omeros has submitted its draft Phase III protocol design to FDA. After finalizing the design of the Phase III trial with FDA, we'll disclose additional details such as patient number, duration of follow-up and expected date of study completion. We're targeting start of enrolment for this year. Close collaboration with senior management and staff at FDA will continue with the shared goal to expedite the development and potential approval of OMS721 in IgA nephropathy. Also in the U.S., a Phase II placebo-controlled trial is underway, evaluating OMS721 in IgA nephropathy patients not taking steroids. The trial will include approximately 5 patients per arm, with 12 weeks of dosing and extended follow up. Data are expected in mid-2018. Another Phase II trial is planned in IgA nephropathy patients with severely low eGFR, specifically eGFR less than 30 ml per minute per 1.73 meters squared. eGFR at this level indicates that the patient is closer to requiring dialysis. Given the severity of renal dysfunction, this will be an open-label trial. The design will include a number of the parameters in the pivotal Phase III trial and is planned to begin after finalization of the Phase III protocol. More details will be shared as we move closer to initiating enrolment in that study. In Europe, we submitted an application for orphan designation of OMS721 in IgA nephropathy, and we also are applying for priority medicines, or PRIME, status for OMS721 in this indication. If we're granted PRIME status, a [Indiscernible] in Europe will be assigned to our program to foster efficient development and progress towards submission of a marketing application. It's our intention to satisfy the regulatory approval requirements for both FDA and EMA with a single Phase III trial currently being finalized. Our Phase II program evaluating OMS721 in patients with TMAs, including stem cell transplant-associated TMA, is also making exciting progress. As most of you know, these patients have a near-term mortality rate of up to 100%. More than 20,000 stem cell transplant procedures are performed annually in the U.S. and about 40,000 each year in Europe. TMA is reported to occur in approximately 10% to 25% of all stem cell transplant patients. Enrolment in the open-label Phase II trial has continued and additional data are being collected. To date, we've enrolled 14 patients with stem cell transplant-associated TMA, and we reported data on those patients last month. Eight of the 14 patients in our trial completed the protocol-specified treatment and two are currently receiving OMS721 treatment in the study. The other four patients either withdrew consent or were discontinued by the investigator after only two to three weeks of treatment with OMS721. Three of the four patients for whom treatment was discontinued early experienced deterioration of their underlying conditions and subsequently died. The other patient, protocol was not followed and disposition is unknown. No apparent drug-related adverse events were identified in any of the patients, either those who completed treatment with OMS721 or those who discontinued treatment early. Substantial and statistically significant improvements in standard measured markers of stem cell-associated TMA activity, specifically mean platelet count, mean lactate dehydrogenase, or LDH, and mean haptoglobin were seen in the 8 study patients who completed treatment. Mean creatinine remained stable at a level somewhat above the normal range, but consistent with this disorder, a large majority of patients had coexisting conditions for which they were already receiving nephrotoxic medications. As with all other OMS721 clinical trials, OMS721 has been well tolerated. No safety concerns have been identified. Also, in October, investigators from our Phase II stem cell-associated TMA trial reported on an OMS721-treated patient at the European Society for Blood and Marrow Transplantation crash course on diagnosis and treatment of non-infectious complications after stem cell transplantation. This patient's course was complicated by steroid-refractory graft-versus-host disease, or GvHD. In addition to improvement in the patient's TMA with OMS721 treatment, it's important to note that the steroid-refractory GvHD also resolved. GvHD is a common complication of stem cell-associated TMA, occurring in 40% to 50% of cases and carries a high level of morbidity and mortality. There is no approved treatment for stem cell-associated TMA. In the U.S., we're pursuing breakthrough therapy designation for OMS721 in this indication. In Europe, we're applying for PRIME status. Our clinical and regulatory teams are working hard to roll out a Phase III program in stem cell-associated TMA before year-end. Timing to initiate enrolment in a Phase III trial will ultimately depend on discussions with FDA and/or EMA. While we expect that our IgA nephropathy program will deliver Phase III data sooner than our aHUS trial, it's entirely possible that a Phase III trial in stem cell-associated TMA could be completed even sooner than in IgA nephropathy. A final note on our MASP-2 program. We're making good progress on our small molecule MASP-2 inhibitors for oral administration. We have expanded our medicinal chemistry capabilities, and we're accelerating our small-molecule development efforts. The other half of our complement franchise, OMS906 targeting MASP-3 also continues to make good progress. Omeros was the first to identity MASP-3 as the key activator of the complement system's alternative pathway. Any clinical indication linked to the alternative pathway should be fair game for our MASP-3 inhibitors. The manufacturing scale process is underway, and we plan to enter the clinic in late 2019 or early 2020. Given our focus on today's call on OMIDRIA and our MASP programs, I'll briefly provide a few highlights on some of our other pipeline programs. First, let's turn to our programs in the field of addiction and compulsive disorders, where we believe Omeros again will play a major role. OMS527 is our lead phosphodiesterase 7, or PDE7, inhibitor. Omeros exclusively controls the use of any PDE7 inhibitor for the treatment of any addiction or compulsive disorder. PDE7 inhibitors work through the dopamine system, which is known to be central to addiction. Our OMS527 program has generated consistently positive results in animal models of cocaine, alcohol, nicotine, and opioid addiction as well as in binge eating. In addition to decreasing craving, OMS527 inhibits both cue- and stress-induced relapse but does not depress the reward system, a problem that seriously hinders the use of currently approved anti-addiction agents. Our OMS527 program remains on track to initiate our Phase I clinical trial within the first half of 2018. As we move closer to that date, we'll disclose our initial indication. In addition to our PDE7 inhibitor, our OMS405 program, focused on PPAR-gamma agonists, has also generated positive data in the treatment of addiction to cocaine, heroin and nicotine. The data from a Phase II clinical trial on cocaine use disorder conducted by independent investigators have been published in the journal, Addiction. Additional manuscripts have either been accepted for publication or are being finalized for submission to peer-reviewed journals. Work also continues in our phosphodiesterase 10, or PDE10, inhibitor program, OMS824. Ongoing nonclinical studies with OMS824 are focused on potential physiologic mechanisms related to the rat findings that currently limit dosing in our clinical studies. Preliminary results support further discussion with FDA regarding the possibility that the rat findings do not translate to humans. Plans for continuation of this program in the clinic will be based on internal ongoing work as well as those discussions with FDA. And we're evaluating a range of indications for this program going forward. We'll wrap up the pipeline discussion with our GPCR program. Omeros believes that it exclusively controls 54 GPCRs with broad ranging indications, including cancer, metabolism, cardiovascular disease and central nervous system disorders. As previously noted, we have expanded our medicinal chemistry capabilities and are accelerating our progress on compound optimization. These compounds are generating positive in vivo data across a number of our targets, including GPR174 for immuno-oncology and GPR161 for triple-negative breast cancer and sarcomas. With that, I'll end the update on Omeros' products and programs and turn the call over to Mike for a summary of our third quarter financial results. Mike?

Thanks, Greg. As Greg noted, revenues for the third quarter were $21.7 million, all from OMIDRIA product sales; and our net loss was $7.5 million or $0.16 per share, which includes the non-cash expenses of $4.2 million or $0.09 per share. Here are some specifics regarding the third quarter results as compared to the second quarter of this year. Our reported revenue for the third quarter increased by 26% or $4.5 million from the second quarter, while unit sales of OMIDRIA by our wholesalers to ASCs and hospitals, or more commonly sell-through, increased by 20%. The difference between reported revenue growth and sell-through unit growth was attributable to an increase in inventory required to support the growth in a wholesaler's consignment program. This increase in our wholesaler's inventory is a result of consigned units of OMIDRIA being recognized as sell through only when used in surgery, as opposed to when shipped to customer facilities. Taking this into consideration, wholesale inventory levels at the end of the third quarter remain at OMIDRIA historical norms. As we expected, the overall amount that we received per unit of OMIDRIA sold in the third quarter was consistent with the prior quarter. We expect Q4 will be similar with -- as the third quarter with regards to the net amount we receive per unit sold. Cost and expenses for the third quarter were $26.8 million, a $2.3 million decrease from the second quarter. Specific variations from the second quarter included reductions in expenses related to the Par lawsuit, which was settled on October 4; a reduction in regulatory costs associated with the onetime standard user fee for the filing of the supplemental NDA related to completion of the OMIDRIA pediatrics trial, and a reduction in employee-related costs due to the timing of payments. These decreases were partially offset by an increase in OMS721 manufacturing scale-up costs and increased costs related to incremental activities associated with our early-stage clinical and preclinical programs. Interest expense was $2.8 million for the current quarter and in line with our expectations. As of September 30, 2017, we had $86.8 million of cash, cash equivalents and short-term investments available for general operations. Included in this amount is the $63.6 million in net proceeds from our issuance of stock in August of 2017. In addition, we have $5.8 million of cash and investments available, as required under our loan agreement, building leases and other operating leases. As you may recall, under our secured debt facility with CRG, we borrowed $80 million in the fourth quarter of 2016 and had two additional tranches we could borrow, one for $25 million and the second for $20 million. The availability of these tranches was subject to us achieving certain revenue or market capitalization thresholds. Based on agreement with CRG, Omeros, at its sole discretion and subject only to customary closing conditions, may borrow any amount up to a total of $45 million through March 21, 2018, under this agreement. Now let's look at the remainder of 2017. Our fourth quarter revenues will, in part, depend on the status of CMS reimbursement for OMIDRIA before January 1, 2018. Should separate payment not be obtained, wholesaler purchases would likely decrease as we approach year-end. As Greg discussed earlier, we're pursuing to continue separate payment for OMIDRIA and will publicly communicate the outcome of those efforts when we know them. During the remainder of 2017, the majority of our research and development expenses will be related to our Phase III and Phase II clinical programs for OMS721 and the preparation for commercial manufacturing of OMS721. We expect these costs to increase to the fourth quarter as we plan to begin enrolling patients in our Phase III IgA clinical trial and as we continue the manufacturing scale-up process for 721. Selling, general and administrative expenses for the remainder of 2017 are expected to be reduced somewhat from the third quarter, primarily due to reduced legal costs associated with the Par lawsuit. With that, I'd like to turn the call back over to Greg. Greg?

Thanks, Mike. We can go ahead now, I think, operator, and open the line to questions.

Thank you. [Operator Instructions]. Your first question comes from the line of Steve Brozak with WBB. Your line is open.

Hey, good afternoon, Greg, I've got three questions here, and I'd like to -- the first one is coming over modeling. Looking at the numbers that we've been going over here internally, we are looking at, pretty much, you should be close to or closing in on breakeven. Can you give us any kind of color, and I'm not looking for any kind of guidance into the future, but right now where you stand and what you're looking at on OMIDRIA sales? And I'll follow up after that, please.

Sure, Steve. Thanks. In the third quarter, as I think I noted, we had a operating loss of about $11.3 million, I believe -- $11.2 million or $11.3 million. And if you back out the accrued liabilities there, the accrued revenues for us, that'll leave you substantially reduced from that number. So yes, we came quite close to being neutral this quarter. I don't want to guide going forward. I think we probably want to be careful about guiding, as you know. But I think, certainly, revenues from OMIDRIA have continued to grow substantially for all the reasons that we discussed.

Okay. And that brings to the next question. You just mentioned like the number that you've seen increased in terms of your market penetration is 8%. Now the way we've looked at it is your goal has always been to become standard of care. And that's a good trade-off in terms of depth of expansion and also what you're talking about in terms of revenue. You'd just mentioned that you're focused on making sure that the product sees expanded use. Between whatever you're looking at on legislative -- how should I put it, on any kind of legislative progress and then also on the continuation of CMS pass-through, what are your thoughts in terms of penetration? Can you give -- what I'm looking for is, how do you look at that? How do you focus on that, because standard of care obviously brings in a critical kind of revenue and makes a big difference? Whatever color you can provide on that would be terrific.

Yes. I think I understand the question. Let me respond in this way. First, I think that we showed, as you noted, growth, both in depth and breadth, in the facilities using OMIDRIA, so increased number of facilities using OMIDRIA in the third quarter relative to the second quarter, also, increased utilization even within the facilities. So that can mean either greater utilization within a specific set of docs who are using it on more cases or actually a broader utilization within that specific facility across a number of docs. So I think that, certainly, that growth continues. When you talk about Standard of Care, we've got to be careful there. Standard of Care, of course, implies medical-legal implications that I think we'd like to steer away from. But certainly, I think our objective here is to increase the utilization. We'd like to see OMIDRIA become more broadly used. I think certainly that's happening. With respect to other options, I'm not sure what specifically you're referencing. So can you help me there?

Yes. It's one of those things where I think that the clinical community has accepted or is beginning to accept the advantages that OMIDRIA offers. In terms of going out there, you've taken all the steps you can to make sure that you're protecting your revenue on that front. But at some point, any kind of price point, whatever happens into the future, when you're looking at reception, any kind of price point where you would see an increase would provide you with increased revenue. So I assume that you've modeled that into your calculations as well. Is that a fair way to look at it?

Sure. Sure we have, Steve. Look, we have known that pass-through is expiring or is slated to expire as of January 2018, since we received pass-through in 2015. But one would expect, certainly, that we have modeled it, planned for it and are ready for it should it occur. The question is, at this point, really, will it occur? And as I've said I think previously, we continue to remain optimistic that there will be continued separate payment for OMIDRIA beyond January 1, 2018. That can follow one of two routes. That can follow a CMS route. That can follow a legislative route. We're pursuing both. The question, I think, that you're asking is one of what if that doesn't occur? What if pass-through disappears on January 1 of 2018, and there is no additional separate payment? Look, certainly, we have modeled that. We understand it. If you look at the increased utilization of the product, if you look at the data around the product, this is a very different situation that we are in today versus the one that we were in 2015 or 2016 or even earlier this year. The expectation around the clinical benefits that this product holds relative to anything else available, the risks that are becoming increasingly recognized and appreciated around compounding products, all of that, we think, translates pretty favorably. And we think that again there -- that you're right, at some point, there is the potential here for standard of use with OMIDRIA.

Okay. And I'll ask -- yes, great. I'll ask my last question and jump back in the queue. On 721, in terms of the -- please correct me if I'm wrong, but in using proteinuria as the endpoint, that's going to -- it's pretty much we've looked, and that's the first time FDA is basically allowing for that standard. So you guys are going to basically be -- I'm sure you're comfortable with it, but you're going out there and you're going to be using something that is quantifiable where you've got defined guidelines, where you've got whatever you're looking at. But FDA is going to be using you as an example. Is that also a good way to look at it? And I'll -- as much as you can tell us on that, it'd be terrific. And I'll hop back in the queue. Thank you.

I can't speak to whether FDA is using us as an example. I can simply say that you are correct. This is the first time that the FDA has indicated willingness and actually stated that they would be willing to accept proteinuria data for full approval. And so we're excited about that. We think that, that provides a more rapid path to full approval. I would not lose sight of the fact that there is also the possibility here for accelerated approval. So we're really talking about two different layers; one which is full approval, and then beneath that, accelerated approval. We're designing our trial so that we can potentially avail ourselves of either of those options, which I think would be pretty clear that what we're trying to do is maximize the likelihood that we can get this product approved as quickly as possible. FDA has been cooperative, very cooperative, with us. They've been very helpful. We're finalizing the protocol for the Phase III program, and we'll let everyone know once that is finalized and once we're underway.

Congratulations on all those news. Obviously everyone’s been expecting this kind of quarter. So, thank you. And I’ll look forward to the follow-up.

Thanks, Steve.

Thank you. Your next question comes from Tyler Van Buren with Cowen and Company. Your line is open.

Hi, good afternoon, guys. A lot of really great information on the call, those were really helpful. So I have several questions, but hopefully they just have brief answers. The first, I guess, on 721 with respect to the IgA brand, you mentioned that the steroid-naive data would come in the middle of next year, which appears to be a new development, because previously, we weren't sure if we would see that data reported or not. So, can you just confirm that the middle of next year, we'll definitively get a data report out with the 535 [ph] placebo-controlled trial in steroid-naïve patients? And also, is that -- could you -- is that representative of the future planned Phase III patient population?

Answer to your first question, the data that we would plan to put out in mid-2018 may not be the full data, given the extended follow-up on those patients, Tyler. But we do expect data to be out in mid-2018 from that study. There are a number of parameters within that study that mirror what we're doing in the Phase III program. So I think that it will give us -- it's going to help plan some of the follow-up that's done in that Phase III program as well.

Yes. So does that mean that we may get some -- like some initial [Indiscernible] data after like three months as opposed to six, nine or 12 months?

I can't give you the duration of the follow-up at this point. I'm just simply telling you that we will put the data out that we have at that time. And we expect that, that will include proteinuria data and some follow-up data as well on those patients.

Okay, that's helpful. And on the Phase III program where we're still awaiting additional details, you mentioned full versus accelerated approval, and it could get accelerated approval if there are meaningful reductions in proteinuria. So how should we think about the magnitude of proteinuria reductions? And what would be required for accelerated versus full approval on a percentage basis?

Yes. I think that, ultimately, as you know, that decision is going to reside with the FDA, not with us. But I think that certainly there's a level of reduction in proteinuria. And I think that you'd also have to incorporate other findings around those patients -- concurrent findings around those patients. And the total picture that would be generated around those patients, I think there is clearly a level at which full approval would be granted. If it's something below that, in total picture again, then I think that, clearly, the option for accelerated approval remains. And what that would allow is, as you know, the marketing of the product while we continue to collect additional data to support full approval. And that full approval would likely involve eGFR data and other longer-term follow-up. I think, again, the important part of accelerated approval, which I know you understand well, Tyler, is that you're able to market the drug while you collect the data to support the full approval.

Great. And for the last question on the pipeline, obviously, you're going to have three Phase III programs underway soon and mentioned a ramp -- a potential ramp in R&D spending. Can you just help us understand the magnitude of that potential ramp versus this year? What we might see next year and how we should expect it to increase over the next year or two?

Yes. We haven't guided to that yet. And so I think, that question, I'll defer for now. We would expect it to come up some, but if you've seen how we've been running programs and you understand how we have been managing the dollars here, those will continue to be tightly managed.

Got it. And just finishing on OMIDRIA, again, a lot of detail on stocking, there is clearly a good number for the quarter. Can you give us an understanding of how many weeks of inventory are currently in the channel, and what the magnitude of stocking was out of that $21.7 million number for the quarter?

Yes. The channels remained, I think as Mike told you, at historical norms. So in the channel consistently are two to two and a half weeks of inventory, and that's been pretty standard now, I believe. I'd have to go back and look, but I believe that's been pretty much our standard for several quarters.

Okay. Seems reasonable. And on the legislative process, potential bill for reimbursement. Is there any additional color you can give us there to get confidence that we could see something before year-end?

I don't think so. I don't think it would be appropriate for me to comment on that. I've told you, I've told everyone on this call, what we're doing, both from a CMS perspective and from a legislative perspective. I think what I can say is to underscore, I believe, what I've already said, which is extension of pass-through as one option is good policy. I think that's understood bicamerally and across the aisle, so bipartisan support, bicameral support for that. I think we'll need to wait and see how things play out and what vehicles come along that allow such legislation to be passed. But again, I -- we remain optimistic that there will be continued separate payment for OMIDRIA beyond January 1, 2018. As I said earlier, there are no guarantees for that, Tyler, and I'm not going to state any guarantee now. I'll simply tell you that we remain optimistic that, that will take place.

Okay. And my last question is just mechanistically, I guess, in a worst-case scenario, assuming that the C-code doesn't get extended and there's no separate mechanism for reimbursement, doctors that are currently being reimbursed via the C-code, via CMS right now, how, I guess, mechanically does that reimbursement process change? And do they need to change their system? Or how does that process change? And currently, for each bottle, what are you guys netting in terms of price? And assuming that they increase the bundle a little bit, and, if I'm correct, the generic bottles are somewhere in between $50 and $100, where could you see the price going to from the current net?

Yes. First of all, the reimbursement process for the facilities and for the physicians, frankly, would simplify. Physicians and facilities would no longer need to select patients or identify patients that are reimbursable for use of OMIDRIA. They would simply purchase the product, and then the product would be paid for under the increased packaged amount tied to cataract surgery. So -- and remember, this is for CMS patients. So everything we're talking about with respect to pass-through, I know you understand but I'll just say publicly so everyone gets it, is relevant only to CMS or Medicare patients. So in fact, the process would be simplified. The ability to use the product, I think, for some physicians would broad -- again price dependent. Where -- I think you asked about what the net on the product is currently? For net...

The current net and where it might go eventually.

Yes. The current net, I think you can calculate, is about 3.40 [ph], 3.50 [ph] with a 25% gross to net. So that's where we currently are. Where it would go, look, I'm not going to speculate today on where that price would be. I certainly believe that price would be substantially higher than it would have been in 2015, 2016 or even early 2017. So clearly, we believe we can do -- we can continue a revenue stream that would be meaningful to the company under any of these scenarios.

Thank you very much for entertaining the questions.

Thanks Tyler.

Thank you. Your next question comes from Jason Kolbert with Maxim Group. Your line is open.

Hi, there. Michael Okunewitch on behalf of Jason Kolbert. Congratulations on the great quarter.

Thanks, Mike.

I just want to ask regarding OMS721. So as you look to advance towards the pivotal program in TMAs, can you discuss which patients you may target, such as the Soliris-refractory, treatment-naive, patients with coexisting GvHD, and how this might affect the trial parameters?

Sure. Good question. Well, first of all, as you know, Soliris is not approved for stem cell-associated TMA. There is no approved product for stem cell-associated TMA. We would be focusing on patients similar to those that we have already treated. These are patients who have undergone stem cell transplantation, have then developed a thrombotic microangiopathy, or TMA. The patients that we have treated have already undergone modulation of calcineurin inhibitors, and those patients have very high mortality rates. As I said earlier, greater than 90%, in some reports closely approximating 100%. So those are the types of patients that we'd be looking for. We would likely take, and again I don't want to over-speak for our clinical team, but I will say that we would likely take those patients who might have seen Soliris previously and were refractory to it. I don't think that, that would be a large portion of those patients that we would be treating, however. So I expect that the parameters around which we would be enrolling those patients are very similar to those on which we've enrolled the patients to date.

All right. Thank you. And then just staying with the TMA thing, will the Phase II trial continue to enroll more patients? And will patients that already completed the treatment stay on OMS721?

Let me answer that in the reverse order. Those patients who have been treated with 721 for stem cell transplant-associated TMA, this is not a chronic disorder. So those patients respond. And as we said, eight of the 14 patients that we have treated did respond. Two of the patients are still in treatment. Four of the 14 patients did not complete treatment, only had two to three weeks, and three of those four subsequently died in line with kind of the severity of this disease or this disorder. So likely, those patients will not remain on long-term therapy with OMS721. Going back to your earlier question with respect to, will we continue to enroll patients in the Phase II trial? We will continue to enroll those patients until the Phase III trial is up and running. It, frankly, does not make a lot of sense to us to stop that trial and lose the ability to, number one, help patients; number two, gain additional insights or information from the treatment of those patients in the Phase II trial. So the -- I think the likelihood here is that you will see the Phase II trial continue to enroll stem cell transplant-associated TMA patients until the Phase III is up and running.

All right. Well, thank you very much for taking my questions.

Thanks Mike.

Thank you. Your next question comes from Ram Selvaraju with H.C. Wainwright. Your line is open.

Hi. Thank you for taking my question. This Julian [ph] calling in for Ram. Regarding 824, when are the Phase II trials expected to yield data? And how do you plan to develop this asset in future studies?

824, our PDE10 inhibitor, those clinical trials are currently suspended, Julian, as we've led out previously. They were suspended secondary to findings in rat, which generated some concern at the FDA. And so we suspended those trials. As I think I alluded to in the prepared comments that we have additional in vivo data, those data suggest that the rat data may not be relevant to the human. We need to discuss that with FDA. We need to lay those data out, discuss what we're thinking there, get FDA's input, and then we'll have more to say about the PDE10 program. Right now our focus, frankly, is the multiple OMS721 programs that are driving forward and the OMS527 program, which -- the PDE7 program, which we expect to have in the clinic in the first half of next year.

Great. Thank you.

Thanks.

And I'm showing no further questions at this time. I'd like to turn the call back over to Dr. Demopulos for closing remarks.

All right. Well, that wraps up the call for today. Appreciate everyone's questions. Appreciate everyone listening in. As always, we appreciate your continued interest and your continued support. Have a good rest of the day, and we look forward to sharing more news with you as the weeks and months progress.

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