Good afternoon, and welcome to today's Conference Call for Omeros Corporation. At this time, all participants are in listen-only mode. After the company's remarks, we will conduct a question-and-answer session. 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 will turn over the call to Ms. Jennifer Williams, Investor Relations from Omeros.

Good afternoon, and thank you for joining the call today. I'd like to remind you that some of the statements that will be made on the call today will be forward-looking. These statements are based on Management's beliefs and expectations as of today only and are subject to change. All forward-looking statements involve risks and uncertainties that could cause the company's actual results to differ materially. Please refer to the special note regarding forward-looking statements in the company's quarterly report on Form 10-Q, which was filed today with the SEC, and the risk factor section of the company's 2018 annual report on Form 10-K for a discussion of these risks and uncertainties. Dr. Greg Demopulos, Chairman and CEO of Omeros, will take you through a corporate update; and then Mike Jacobsen, our Chief Accounting Officer, will provide an overview of our second 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 joining us today. The second quarter was another strong one for Omeros with OMIDRIA once again generating record-quarterly sales and our pipeline programs achieving a number of important milestones. Let's begin our update today with narsoplimab our MASP-2 inhibitor and our progress toward regulatory approvals in stem cell transplant-associated thrombotic microangiopathy or stem cell TMA. In the U.S., we have submitted to FDA our proposed schedule for rolling submission of our Biologics License Application or BLA and are awaiting the agency's response. Given the usual timing of the scheduling process, we are targeting submission of our BLAs first module by mid next quarter. The response-based primary endpoint for our clinical data in stem cell TMA patients is set and includes both laboratory markers as indicators of deceased process and measures of organ function. For competitive reasons, we have not yet released the specific details of the endpoint, given that there is no approved drug for stem cell TMA and that this is the first endpoint on which such an approval would be based. It's fair to say though that FDA would not have agreed to endpoint criteria on which they could not grant approval and we are confident that our data meet them. No additional patients are required to be enrolled. A majority of the clinical trial data are already in-house, collection of the remaining data is underway and narratives describing each patient's decease course and response to narsoplimab are already being written for inclusion in the BLA's clinical module. The safety profile of narsoplimab continues to look good and there have been no adverse safety signals. Now let's look at our progress on Chemistry Manufacturing and Controls or CMC. Here again, we are well-positioned. In addition to locking down…

Thanks, Greg. As Greg noted, OMIDRIA and total revenues for the second quarter were $26.8 million and our net loss was $14.5 million for $0.29 per share. This includes a non-cash expenses of $6.3 million or $0.13 per share. Here are some additional details regarding our second quarter results as compared to the first quarter. Once again, OMIDRIA achieved record-quarterly sales with total product revenues of $26.8 million, compared to $21.8 million in the immediately preceding quarter. This is an increase to $5 million or 23%. During the second quarter, our overall growth to net deductions were 28% which is relatively consistent with the 27% from the first quarter. Cost and expenses for the quarter were $36.1 million, a $4.9 million decrease from the first quarter of this year. The decrease was primarily due to the timing of manufacturing scale of activities at Lonza, our commercial manufacturing partner for narsoplimab. Interest expense is in-line with our expectations at $5.5 million and did include $2 million of non-cash interest. As of June 30, 2019, we had $31.8 million of cash, cash equivalents and short term investments available for general operations. Additionally, we recently entered into a three-year agreement with Silicon Valley Bank for $50 million revolving line of credit. Under the terms of the agreement, we can generally borrow up to 85% of our outstanding accounts receivable. Interest on any of the outstanding balance that accrues at the greater of 5.5% or the prime rate. Once again, the agreement does not require a pledge of any of our intellectual property, nor does it include any financial covenants. Now let's take a look ahead for the second half of this year. With regard to revenue, despite the fact that third quarter is historically one of the weakest for cataract surgery procedures, we…

Thank you, Mike. Operator, let's open the call to questions.

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

Greg, thanks for taking the questions and I'm just going to dive right in with two items. On OMIDRIA, what would you say the current market penetration is? I know there's familiarity, I know that you hit accounts, but what would you say the current market penetration is and what can we take away from this right now and into the near future? And then obviously I have a question on narsoplimab, please.

Sure. Thanks, Steve. We would expect that currently, we're running at about 8% to 10% of cataract surgeries that are performed annually.

Okay.

Obviously, there's a significant room for growth in that number.

As much as you can tell us, obviously, there's a specific focus in Congress dealing with opioids and opioid addiction. How does OMIDRIA positioned in that kind of discussion? How would you look to describe it? Then I'd like to go back in the narsoplimab, please.

Sure. As I went through in the prepared comments, we think we fit squarely within the criteria set by CMS not just last year or in last year's OPPS proposed and final role, but this year's OPPS proposed rule. We have data which will be published, showing that OMIDRIA reduces the need for fentanyl which as you know is one of the most concerning opioids nationally, but also is of high focus in DC. The data clearly show that OMIDRIA reduces the patient need for fentanyl. Our Phase 3 program show again the same thing, reduction and the need for opioids and all of that while concurrently decreasing VAS pain scores. As you know, normally you hold one of those two parameters fixed while you measure the other. So if you're measuring pain medication, you hold the VAS pain scores fixed and then measure the amount of drug needed or conversely, you hold the amount of drug that you administer fixed and then assess VAS pain scores. Here just as in our Phase 3 trials, both of those variables were allowed to float and yet we consistently see not only a reduction and the need for opioids at this most recent study, fentanyl specifically, but also marked reduction in VAS pain scores. So nearly an 80% reduction in the need for opioids or fentanyl and the concurrent greater than 50% reduction in VAS pain scores. That's really quite impressive. In addition to that, there is a corresponding memo from one of the world's leaders in drug addiction, pain management, opioid use disorder who has commented specifically on the data coming out of this recent study. And the wrecked correlation of those data to opioid use disorder and specifically reducing the risk of opioid use disorder in cataract surgery patients. I think in short, we are right in the center of it and I can't imagine how we would otherwise not meet those criteria.

Okay. Going in narsoplimab, you detailed the Lonza manufacturing relationship and you've been telling us about on the clinical side with FDA and your dealings with them. The one component I'd like you to talk about and I'll hop back in the queue, is the clinical reception. What -- given how much you've done so far -- are you seeing as far as the clinical demand? Of course there's the self-described clinical demand, but what you seeing from the clinicians that we should know in terms of their understanding and everything else and anything else, you can tell us and I'll hop back in the queue. Thank you.

Sure. Thanks, Steve. Look, obviously we're dealing closely with the opinion leaders in stem cell TMA and they are eager and in fact one could describe it as passionate about being able to access the drug for their patients. A number of these opinion leaders have used the drug, others are requesting it, our compassionate use program is expanding. All of these things indicate I think and underscore the clinical response to narsoplimab in this indication. So our objective is to get this under the market as quickly as possible. We are collaborating closely with FDA to get that done and we're collaborating as well closely with EMA to get that done in Europe.

Great. Congrats on the quarter and thanks very much for taking the questions.

Thanks, Steve. Thank you.

[Operator Instructions] You have the next question from the line of Brandon Folkes. Your line is open, sir.

Hi, Brandon.

Hi. Thanks for taking my question. So if you [indiscernible] on the call between a few calls; but I'd like to get your thoughts on the 2020 OPPS proposed rule. From my side of the relation to -- just given, it seems that you do have dividends that not having posture this incentivized use [indiscernible] opioid and then as you mentioned earlier, the fentanyl side of things, you do have that dividend. Just any color on that proposed rule.

Sure. We and our team have really calmed through that rule very closely. It's interesting that as I mentioned, I think in my opening remarks that OMIDRIA is not specifically named. Again, OMIDRIA is currently enjoying pass-through designation. So I think that may explain it, but when we look at this, as you said, we clearly meet those criteria. Not only do we have data which will be published that demonstrate the reduction in opioid use, but you pointed out an important second component which is that CMS claims data support that packaging such a drug would limit access to that drug. I can tell you that we have data with CMS claims data that clearly make that case. That nine month hiatus that we had beginning January 1, 2018 and running until pass-through as reinstated by Congress on October 1, 2018. Well, painful as that was, I think may have been fortunate at least in this respect where it clearly allowed us to generate those kind of claims data and those show again as just as you would expect, a marked reduction in patient access to the drugs. As we read it -- and again, we're still digesting different parts of it and trying to make sure we put all the pieces together because you know, it's an awfully large document and there are multiple components that sometimes even seem to conflict a little bit, but as we put all of the pieces together, I think we're quite confident that we squarely fit within the non-opioid exclusion. And then there's the entire other question about the drugs and the supplies. I think we continue to enjoy and are frankly building on what we currently have support legislatively. I mentioned the bipartisan, bicameral vision which has gone on record with CMS saying, 'Look, this is a situation that's just not working and that this needs to be fixed to ensure access for patients to important drugs'. Remember, this is all about patient access. Others try to describe it in other ways, but the distal lit of all of this is patient access, should Medicare Part B patient be denied access to important drugs that other patients are readily able to access. Whether those be commercial payer patients or Med Advantage patients, or VA patients, as you know, the drug has been placed on the national formulary for the VA. That means that every VA facility in the country that performs ophthalmic surgery is mandated to, must make OMIDRIA available upon request to its physicians. That's a pretty powerful statement. I think again we're pretty well-situated and why don't I stop there and see if you've got any other questions about it?

No. That was very helpful. Maybe one additional question again. I'm sure you covered some of this on the call. But the agreements with the FDA on the endpoint seem to be very positive on narsoplimab. So if I look -- and the question I get from investors is when will we see additional data on the product? Is the EMA coming to an agreement with FDA [ph] potentially a catalyst for us to see more data on that product?

I understand the question, thank you. Brandon, look. First, I'll address those in the reverse order. We are working with EMA so that we can also make the drug quickly available in Europe for the European transplant physicians who are frankly requesting it and want access to it for their patients. Is that related to our release of data? No. Not really. The data will be released as we put together the clinical module and finalize the clinical module of the BLA. But I think what people need to recognize -- I understand the question of, 'well, geez, if they're not sharing the data, there must be something wrong with the data'. I can understand that perspective, I can simply tell you that that perspective is flatly wrong. We put a tremendous amount of effort, time and resources into developing what we propose to FDA as the criteria for the primary endpoint. Remember, it was FDA that frankly, does to change the endpoint from overall survival to a response-based endpoint. A lot of time, effort and resource went in to developing that, reaching the agreement with the FDA on it and also generating the data that we have. We don't feel a particularly burning need to make all of that information potentially available or publicly available to any competitors who want to follow us. We're setting the bar, we plan to set the bar high and we plan to obviously meet that bar. We expect we will. The data will come out and when they do, others will be able to look at it and see, 'Geez, this is how Omeros did it. How do we now if we want to follow Omeros into this space, how do we design our endpoint? How do we design our programs?' But we don't see that real need at this point to accelerate that possibility for any competitors.

Completely understood and I think that's the right approach. Thank you for that color.

Thank you, Brandon. Thanks for joining.

We have another question from the line of Ram Selvaraju from H.C. Wainwright. Your line is open.

Hi. Thanks very much for taking my questions and congrats on the good quarter. Just a couple on OMIDRIA first. I was wondering if you could elaborate, Greg, on what you saw as the main drivers of OMIDRIA sales momentum in the second quarter? And if you saw any meaningful new sales trend emerging or if there was sort of more of the same that you've seen earlier in the year. And if you could also comment on the re-order rate or the reutilization rate for OMIDRIA, please?

Sure. First with respect to the drivers of the growth Q2 over Q1, they were largely the same. It was increasing number of accounts and it was increasing penetration within accounts. But let me give you a little more color on that which I think might be helpful. We are very focused on expanding the base of our customers and those using OMIDRIA. It's important that we increase the number of facilities for a reason which you of course readily understand. At the same time within those facilities, we want to make sure that we are maximizing as much as possible the utilization of OMIDRIA across physicians and frankly across procedures a pairs. We don't want physicians only to use this with Med Part B patients. That's why we're so focused on the commercial payers now and we're having tremendous success there. Our commercial team has been doing a wonderful job of expanding payer access. It's very interesting. Often these payers reply that they really didn't even know much about the drug and now that they're learning about it and understanding and frankly hearing about it, they're understanding the payment is the right thing to provide. I think with respect to trends, we are seeing growth in the hospitals. That as you know always takes a little longer. It has to go through multiple committees for that kind of approval for use in hospitals, but we're really seeing quite an uptick in the number of hospitals. I think now even if you look -- this may seem like somewhat of an odd statistic, but if you look at the top 17 academic centers, I think we're now at about 12 of those that are using OMIDRIA. That's impressive because you want the residence in training to have access to this…

Thank you. That's very helpful. Just on the reorder rate. If you could just maybe refresh me on that.

Sure. I understand the question, I believe, which is really one of inventory. I can just tell you that inventory on hand at the wholesalers has remained consistent with historical norms. Number of days of inventory at the wholesaler space about the same, which is at about one and-a-half weeks usually. Remember, this is a drug that can be accessed very quickly. So it's turned around and effectively a day. There's not a lot of inventory that's held at the wholesalers and there's not really stockpiling of the drug. The sales that you're seeing in this quarter are real sales. These translate to sell-through to the facilities.

That's definitely helpful. But what I also wanted to know was the degree to which you get repeat orders from customers? How many customers are on a percentage basis are reordering the product?

Very high. Very high. I think once physicians and facilities see the advantages of the drug, it's I think frankly difficult for them to give it up. Certainly we see some attrition, but the reordering is highly consistent across groups.

Okay. That's very helpful. Thank you. I also wanted to ask about the R&D expense that you reported in the second quarter. It's a bit lower than we had originally expected. Is this sort of more in-line to what we should anticipate for the remainder of this year? The reported R&D rate? Or do you expect it to go up in the second half?

It's going to be variable, Ram, as I think Mike mentioned. Manufacturing of antibodies as you know is an expensive proposition. It really depends in part on where those manufacturing runs fall. I would expect sort of choppy or lumpy operating expenses which will be -- that variability is in good part driven by just the manufacturing of narsoplimab.

Okay. And then just few questions on narsoplimab, if I may. I wanted to clarify. The long-active version that you talked about in the press release that I believe you mentioned would potentially provide a subcutaneous monthly administration to be possible, that compares to daily subcutaneous injection using the current formulation, is that correct?

Subcutaneously now, we are administering this in the AHUS study daily. That doesn't mean that we're required to administer it daily, but we currently are, for frankly convenience as well. If you are going to administer this twice a week, it's a little more difficult to remember which days of the week you take it and which days you don't. Given the absence of any adverse safety signal with the drug, we felt comfortable with daily subcu. But yes, I fully expect that we will have the longer-acting or longer duration antibody in the clinic as I said by middle of 2021. And with that, we expect to be bringing on the orally-available small molecule MASP-2 inhibitor. I think what we've tried to do here is canvass the entire MASP-2 area which means we are canvassing the entire lectin pathway. At the same time our MASP-3 inhibitor is coming. That will be out of the gate likely once monthly. It certainly looks that way. We'll know when we get it into Phase 1 studies which we plan to do by the middle of 2020. Boy, that's coming very soon as I say that. But we expect that that will be once monthly or something close either up or down. And also small molecules of MASP-3 coming. We believe that we're creating quite a franchise on the complement front and that each of those drugs will have a use across a number of indications and we'll just figure out how we target.

Can you just confirm that this second-generation [ph] antibody is a different molecule entirely to narsoplimab? Correct?

Yes. Entirely different.

Okay. And then just very quickly. Can you just give us a sense of what the current size is of the compassionate use program for narsoplimab and how many patients are currently receiving therapy? And then if you could also give us a sense of what the timing interval is likely to be between module submissions for the narsoplimab BLA? Thank you.

With respect to your first question, no, we haven't talked about the specific number of compassionate use patients. I'll just tell you that that number is growing and in fact we're going to be even needing to use an outside group to help us manage the number of compassionate use requests and the number of compassionate use patients that we have so that we can make sure that all those patients who are requesting the drug and physicians who are requesting the drug can actually access it in a timely way to help their patients. There's nothing more disappointing than getting a request for use of OMIDRIA and by the time we can get the drug to them, the patient has died. We're working to expand and accelerate the delivery of the drug. I think that's where we are on the compassionate use piece. With respect to your second question about intervals of timing between modules, I think it's a little premature to say. I have told you what we're targeting and that targeting factors in sort of just the submission of the proposal for the time line that we have already made, also factoring in FDA's time to respond to that. So what we've said we're targeting there is mid next quarter. So we're really talking about October or November mid part of November to get our first module in and again, that's assuming the time line works as we expect and FDA gets back to us and says, 'Yes, we're comfortable with the overall schedule and we'll review it at these times'. I think it's pretty immature to talk about the timing of subsequent modules until we hear back from FDA and FDA has said, 'These times that you've proposed work for us' or, 'No, they don't and we need you to move them this way or that way'. But we have made proposals for each of the modules and FDA has those and we'll wait for their response. They're usually quite responsive despite frankly how busy they are. This division is extremely busy, yet they seem to respond pretty quickly to us. We're very pleased about that relationship.

Great. Thank you very much. Congrats again on all the progress.

Thank you.

We do have another question from the line of Serge Belanger from Needham. Your line is open.

Thanks for the question. This is Tian, on for Serge. I think you mentioned that you're adding Humana.

I'm sorry. I can't hear you.

Hey, can you hear me?

I can now. Yes, thanks.

Okay. Thanks for the question. I think you mentioned that as of October 1, Humana is adding the J Code into their plans. Do you have any expectation as to the rate or the number of plans that you might be expecting to add in the next few quarters in the future? How should we expect going forward? Thanks.

Yes. I think certainly, Serge, the numbers of payers who we'll reimburse OMIDRIA under the J Code will increase. Relative to those that we have under a C Code, there are number of payers who simply just won't reimburse under a C Code. Those will quickly, I think, transfer over and we'll see reimbursement form them in J Code. In terms of getting other payers to put the J Code on, I expect we'll be quite successful with that. I don't have any projections at this time. We have multiple communications with those plans ongoing and we're tracking the responses. I expect we'll do well. I can't give you right now a specific slope of the curve that I think we're going to see, but I expect that will be upward moving pretty quickly.

Thanks, very helpful.

Thanks.

I am showing no further questions at this time. I would now like to turn the conference back to Dr. Demopulos.

Thank you, Operator, and thank you, everyone. We really appreciate all of you taking the time to listen in. 2019 is living up to its promise. To our shareholders, we thank you for your continued support. We have now improved the lives of cataract surgery patients with OMIDRIA having been used in over 800,000 procedures and narsoplimab continues to save lives. The drugs are dancing quickly and our pipeline will, I believe, do similarly wonderful things to help patients. Again, we plan to be putting out some additional information in the relatively near term as I went through in the comments. But until then, good evening to all of you. Thank you.

Ladies and gentlemen, this concludes today's conference. Thank you for participating. Have a wonderful day. You may all disconnect.