Omeros' (OMER) CEO Greg Demopulos on Q2 2016 Results - Earnings Call Transcript

| About: Omeros Corporation (OMER)

Omeros Corporation (NASDAQ:OMER)

Q2 2016 Earnings Conference Call

August 9, 2016 16:30 ET

Executives

Jennifer Williams - IR

Greg Demopulos - Chairman & CEO

Mike Jacobsen - Chief Accounting Officer

Analysts

Steve Brozak - WBB Securities

Serge Balenger - Needham & Company

Liana Moussatos - Wedbush Securities

Thomas Yip - FBR

Jason McCarthy - Maxim Group

Tyler Van Buren - Cowen & Company

Operator

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'll now turn over the call to Jennifer Williams, Investor Relations for Omeros. Please begin.

Jennifer Williams

Good afternoon, and thank you for joining the call today. I'd like to remind you that some of the statements that will be made on the call today will be forward-looking. These statements are based on management's beliefs and expectations as of today only and are subject to change. All forward-looking statements involve risks and uncertainties that could cause the Company's actual results to differ materially. Please refer to the risk factors section of the Company's filings with the SEC 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.

Greg Demopulos

Thank you, Jennifer, and good afternoon, everyone. Also with me today is Mike Jacobsen, our Chief Accounting Officer. I'll begin today's call with a corporate update, and then Mike will provide an overview of our second quarter financial results. And we have some time reserved for questions after the financial overview.

For the second quarter, our total revenues were $10 million all of which resulted from sales of Omidria, our FDA approved product for cataract surgery. Omidria revenues in the second quarter increased $2.8 million or 38% over the prior quarter. The sales growth remains broad-based with increased utilization across both hospitals and ambulatory surgery centers, consistent with previous quarters; both existing accounts and new accounts have contributed to that growth. Steady state accounts, those that regularly order Omidria and new accounts continue to climb in number representing an increase of 23% and 28% respectively over the first quarter of 2016.

We are seeing these growth measures continuing to increase, largely driven by physician acceptance of and demand for Omidria. Physician demand is a direct reflection of the products clinical benefits. We believe that we have turned the corner with respect to any question of clinical need for Omidria. Ophthalmic surgeons who use the product overwhelmingly recognize its benefits. The importance of those benefits are underscored by the increasing number of clinical studies evaluating Omidria in the real world setting. These studies which have been designed, conducted, and typically funded by physicians who use Omidria have been presented discussed and positively received at the annual meetings of the American Society of Cataract and Refractive Surgery, The Association for Research in Vision and Ophthalmology or ARVO, and KOEI [ph], and most recently at the summer meeting of the American European Congress of Ophthalmic Surgery.

Manuscripts have been submitted to peer reviewed journals and more are in preparation detailing the benefits experienced by surgeons, namely decreased complication rate, reduction in use of pupil expanding devices, shorter age adjusted surgical times, prevention of meiosis in femtosecond laser assisted surgery, and improved visual acuity on the first post-operative day. Importantly, studies included epinephrine as a control and procedures ranged from routine to complex. The volume, strength and consistency of the data have convinced a good number of even those surgeons who are the most vocally skeptical about the role of Omidria in cataract surgery. An additional area of clinical focus now is the preemptive effect of Omidria on the inflammation caused by cataract surgery and the implications of that effect on the use of pre and post-operative topical steroids and non-steroidal anti-inflammatory drugs or inserts.

A manuscript on just this topic is currently being finalized by a world expert on ophthalmic inflammation, an individual who was integral to the development of the first marketed ophthalmic insert. We expect that manuscript to be published later this year. With our success on the clinical front, we are now focused on continuing to expand reimbursement and streamlining integration of Omidria in the facilities administrative processes. Omidria assure our comprehensive reimbursement program, has had a sustained positive impact on Omidria utilization. Enrollment in the Omidria reassure program has continued to increase substantially month-over-month. In addition, we are in the process of expanding our internal reimbursement and access organization with additional hires. We continue to deepen our understanding of our customer's challenges with the reimbursement system, and that really just enables us now to assist with those challenges even more capably.

100% of Medicare administrative contractors reimburse for Omidria. A large number of commercial payers also reimburse for Omidria and when they don't, we pay the difference program, pays the facility on behalf of the patient; the difference between the amount reimbursed and the facilities cost of the drug. So the only payer segment that remains somewhat variable in reimbursement at this time is Medicare Advantage which represents approximately 25% of the cataract surgery market. Medicare Advantage programs cover Omidria but do not uniformly pay for it, often due to specific contractual language with a given surgical facility. We continue to make progress with Medicare Advantage payers, and the contracts that surgical facilities hold with them, but there is more work to be done. Having to determine which patients will receive Omidria based on reimbursement status can be a significant disincentive for some facilities. In response to that we are rolling out initiatives to enable Omidria to be incorporated into practices even more easily and to broaden usage across all patients.

Our first initiative is a consignment program which we established with one of our wholesalers at the request of a number of our ASC customers. From Omeros's perspective, there is no impact on the timing of our revenue. From the ASCs perspective, consignment simplifies ordering as well as simplifying the inventory and cash management processes. It also allows the facility to have product on-hand for every cataract case, rather than anticipating which cases in the coming week will receive Omidria and then having to reallocate drug as the week surgery schedule changes, which it invariably does. In addition, the consignment program is designed to shorten the facilities time between product purchase and reimbursement.

The second initiative is an expanded sampling program designed to allow ophthalmic surgeons and facilities to experience the benefits of Omidria across a wider range of cataract procedures. The initial response to the program has been favorable and the number of facilities taking advantage of this program nationwide continues to grow week by week. We expect our expanded sampling program to lead increasingly more surgeons to integrate Omidria across a broader range of cataract procedures in their day to day practices. Throughout the remainder of this year, we expect to see the effects of our consignment and sampling programs on product uptake. Additional initiatives to further drive sales have been developed and are currently being implemented.

We're pleased with the trends that we are seeing in Omidria sales growth and we continue to build on that momentum. Physician response to the product is increasingly positive even among those who prior to using Omidria were seemingly unyielding detractors. Our customer base is broadening across ASCs, hospital outpatient departments, and academic centers and new accounts are effectively added daily. We also are successfully expanding utilization within existing accounts. This success is driven in good part by the strength and increasing awareness of the real world clinical studies, as well as by the expanding dataset of demonstrated reimbursement across payers and our enhanced ability to assist facilities in securing payment for Omidria in all regions of the country.

We're also making good progress in launching Omidria into international markets. Our supply and distribution arrangement with ITROM Pharma covers the sale of Omidria in the Kingdom of Saudi Arabia, the United Arab Emirates, and other countries in the Middle East. We're working with ITROM to obtain regulatory approval and have been sampling Omidria in key Middle Eastern countries. And assuming completion of appropriate local regulatory applications, we expect ITROM to begin selling Omidria on a limited basis later this year. So with revenues continuing to grow our teams targeting sufficient Omidria sales to fund the ongoing development of our pipeline as we wrap up 2016.

Now let's talk about that pipeline. Our MASP-2 antibody OMS721 targets the lectin pathway of the complement system, which as many of you know is a key component of the immune response. We have three OMS72 programs currently in progress; a Phase III program in atypical hemolytic uremic syndrome or AHUS, a Phase II program in complement-mediated thrombotic microangiopathies, or TMAs, including hematopoietic stem cell transplant related TMAs, and thrombotic thrombocytopenic purpura. Another Phase II program in patients with complement-related renal diseases including immunoglobulin A, or IgA, nephropathy, membranous nephropathy, lupus nephritis and C3 nephropathy.

Last quarter we reported on our successful meeting with FDA regarding the requirements of our Phase III program in AHUS. One, open label, single ARM trial, for which safety data can be drawn from OMS721 trials and other indications and agreement as well on manufacturing non-clincal and toxicology packages, the majority of which have already been successfully completed.

Last month we announced that we had received advice from the European Medicines Agency regarding requirements for European marketing authorization for OMS721 in the treatment of AHUS. The outcome again was successful, we are able to submit applications for approval in the U.S. and in the European Union based on a single dataset. As a result we plan to run a single Phase III clinical trial and overall program to support OMS721 marketing approval applications in both, the U.S. and in the European Union for the treatment of AHUS. We plan to begin enrollment in the Phase III clinical trial later this year. Importantly, patient enrollment numbers required for European approval are consistent with them Omeros's plans for accelerated approval in the U.S. We also are pursuing orphan designation for OMS721 in Europe.

Both of our Phase II programs in the stem cell transplant related TMAs and TTP, and in compliment related renal diseases continue to enroll. As you may recall, the Phase II renal trial is evaluating the effects of OMS721 on kidney function in patients with IJ nephropathy, membranous nephropathy, C3 glomerulopathy and lupus nephritis. There is good evidence that the complement system and specifically the lectin pathway is involved in the pathogenesis of each of these diseases. Given the absence of available therapies in these serious, if this trial demonstrates evidence that OMS721 improves kidney function, slows disease progression, or reduces the need for support of medication in these patients we intend to discuss with FDA a Phase III program that meets the requirements for accelerated approval. Similarly, with additional positive data on the treatment of hematopoietic stem cell related TMAs we plan to meet with the FDA again to discuss our Phase III program , accelerated approval and potentially, breakthrough designation. We look forward to sharing data from the 721 programs later this year.

Turning to the other half of our master program OMS906, that also continues to progress. OMS906 targets MASP-3 which is required for activation of the complement systems alternative pathway. We recently announced results from our OMS906 program that showed that the antibody significantly reduced, both incidence and severity of disease in a well-established model of arthritis which is well known to be mediated by the alternative pathway to study results together with other OMS906 data clearly show that MASP-3 inhibition and specifically OMS906 blocks activation of the alternative pathway. Compared to control-treated animals, OMS906 statistically, significantly reduced both the incidence of arthritis by 86% and the severity of the disease by 90% at the highest dose tested.

A single dose of OMS906 administered intravenously to mice lead to near complete ablation of the systemic alternative pathway activity for at least 14 days. We currently are initiating the process of manufacturing scale up of OMS906 in preparation for clinical trials and we, here again, also expect to provide additional data on the efficacy of OMS906 in the near future. With our OMS721 program targeting MASP-2 which is the effector enzyme of the lectin pathway and our OMS906 program targeting MASP-3, a protein essential for alternative pathway activation. I think you can see how Omeros controls a substantial real state across two of the three complement pathways.

Next, let's discuss OMS824, our phosphodiesterase 10 or PDE10 inhibitor in development for the treatment of Huntington's Disease and other cognitive disorders. To inform our clinical trial design we continue to await Pfizer's results from its large Phase II Huntington's trial with its PDE10 inhibitor which requires twice daily dosing as opposed to OMS824 which is administered once daily. We also are working to remove any dosing limitation for OMS824.

Now let's turn to our addiction programs, OMS405, our PPAR-gamma agonist program and OMS527, our PDE7 program for addiction and compulsive disorders. Omeros has broad issued and pending patents covering the use of any PPAR-gamma agonist or PDE7 inhibitor in the treatment of any form of addiction and additionally, any PDE7 inhibitor in the treatment of any compulsive disorder. Addiction cost the U.S. alone approximately $0.5 trillion annually. We expect to provide data later this year on the effects of PPAR-gamma agonist in patients suffering from addiction. Interest in PDE7 inhibitors for the treatment of addiction is growing as well within the pharmaceutical industry. We expect that there will be data generated by one or more other companies confirming our findings of the importance of PDE7 inhibitors in these devastating diseases. This becomes increasingly important given Omeros's broad patent position in the space.

We're finalizing a manuscript for submission to a premier peer reviewed journal that will detail the in vivo efficacy data and mechanism of action of PDE7 inhibitors in the treatment of addiction and compulsions. You may also recall that we have broad patent protection directed to any PDE7 inhibitor for the treatment of any form of movement disorder, including Parkinson's, ALS and others. We plan to move OMS527 into the clinic next year.

Finally, our GPCR program is also making good progress. We are advancing pre-clinical programs targeting appetite and eating disorders, triple negative breast cancer, demyelinating diseases such as multiple sclerosis, neuropathic pain, and osteoporosis, seasonal effective disorder, as well as a receptor that appears to modulate T-cell regulation, important in both immunologic disorders and cancer. And other receptor tightly-linked to epithelial stem cell function. Compound optimization in animal studies are ongoing, and we expect to share additional information on our GPCR program later this year.

So that concludes our update on Omeros's products and programs, and at this point I'll turn the call over to Mike for summary of our second quarter financial results. Mike?

Mike Jacobsen

Thanks, Greg. As Greg noted, our overall GAAP revenue for the second quarter was $10 million and our net loss was $12.6 million or $0.32 per share. Our not loss includes non-cash expenses of $3.2 million or $0.08 per share.

All of our second quarter revenue was from Omidria products sales. While on the first quarter we had $7.2 million of Omidria products sales and $173,000 of grant revenue. This equates to an increase in Omidria product sales of $2.8 million or 38% over the first quarter. With regard to the Omidria pricing, net revenue per vial sold remained relatively constant between the first and the second quarter. In contrast $273 in grant revenue in the first quarter, we received no grant revenue in the second quarter and currently we don't anticipate any additional grant revenue on a go-forward basis.

Our costs and operate expenses for the second quarter were $20.9 million, a decrease of $5.9 million from the first quarter. The decrease was primarily related to the timing of costs and OMS721 research and development activities, and the decreased non-cash stock comp related to annual employee stock option grants we made during the first quarter of 2016. The completion of the enrollment and our post-marketing Omidria pediatric trial also contributed to the decrease in operating expenses.

Turning to the balance sheet; as of the end of the second quarter we had $21.2 two million in cash available for general operations and $10.7 million of restricted cash, primarily tied to our loan with the Oxford Finance and East West Bank. As you may recall, in May we accelerated the $20 million of borrowing available under our loan agreement bringing our total outstanding balance to $70 million. The amendment did not modify the interest rate or any terms or covenants other than to increase the final payment fee applicable to the $20 million from 5.25% to 6.25% which reflects the interest earned on the longer period, the $20 million will be outstanding.

We also issued the lenders warrants to purchase up to approximately 100,000 shares of our common stock at the then current market price of our common stock. We are making interest-only payments at 9.25% through July of 2017 and beginning in August of 2017. We'll begin making principal and interest payments to the January 2020 maturity date.

Now let's take a look ahead at what we're expecting regarding operating expenses as we go forward. With regard to research and development we anticipate that during May, the remainder of 2016, the majority of our research and development expenses will be related to our Phase III and Phase II clinical programs for OMS721 and the continuation of the tech transfer of Omidria commercial manufacturing to Hospira. We anticipate this amount will likely grow somewhat during Q3 and Q4 compared to Q2.

Selling, general and administrative expenses for 2016 are expected to increase during the remainder of the year due to enforcing our plans against PAR Pharmaceutical and additional sales costs related to incremental headcount and expanded marketing programs.

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

Greg Demopulos

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

Question-and-Answer Session

Operator

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

Steve Brozak

To make a long story short, Greg, I'm looking at a big question here and that has to be -- it's too early for you to go out there and start to talk about guidance but you in terms of what can you give us as a takeaway that you that you're comfortable with? And I just have a mass two question after that, please.

Greg Demopulos

Well, I agree with you. We don't provide guidance as you know, Steve. We're still working through the launch of this product and how things are moving through that. But as I said, we're comfortable with the sales growth of Omidria.

Steve Brozak

Greg, going back to MASP-2, that actually gotten a program off the ground with Omidria, what can you tell us about the difference that you're going to look at on the MASP-2 programs it's far regulatory approval. What are you looking at the difference? And you can be as specific as you like on that, please.

Greg Demopulos

I want to make sure I understand the question, Steve. When you're saying what difference are we looking -- you're saying between Omidria and 721?

Steve Brozak

Between Omidria and the clinical hurdles that you face between the two programs because there is obviously seismic differences between the two.

Greg Demopulos

Yes, sure. Okay, now I understand your question. Well, first we're talking about a small molecule in versus a biologic in 721. Omidria we're talking about a very large population of patients undergoing that procedure 4 million -- effectively close to that number 4 million in the U.S. versus ultra-orphan population with AHUS. Similarly, stem cell transplant related TMA is relatively rare – IJ nephropathy however not so rare, about 120,00 to 150,000 patients in the U.S. alone. But -- so obviously, you've got differences in accessing those patients. But otherwise, I mean for Omidria remember we needed to run not just two Phase III trials but we needed to run a full factorial Phase IIB trial. For 721, for AHUS in both the U.S. and Europe, we're talking about one single -- meaning the study being used for both U.S. and European regulatory purposes, one single armed trial for both U.S. and European regulatory approval packages and that's an open label study. So I think the differences are stark -- their advantage is obviously two to both of those programs. Did that answer your question, Steve?

Operator

Okay. We'll take the next question from Serge Balenger of Needham & Company. Your line is open.

Serge Balenger

Good afternoon, Greg. Couple of questions, first on Omidria. If you could just commenting on whether pricing has remained stable and I guess if reimbursement cycles are still decreasing. And then I think in the past couple of quarters, you've also talked about how the product was selling on the sell through basis? I'm not sure if you mentioned that on your prepared comments.

Greg Demopulos

Sure, let me answer them in the order that you've given. I mean effectively, the pricing is about the same. There hasn't been a meaningful or significant decrease in in pricing. The second question was around I think the hurdles on reimbursement. Yes, those are continuing to be removed or we are continuing to overcome them, some still remain. But I think our team is doing a very good job of addressing those and addressing those quickly. I mean as those reimbursement -- any issues arise, our team really jumps on top of those, addresses those, and I think satisfactorily addresses those. Now with respect to sell-through, we’re a year in now, and the sell-through isn’t really meaningfully different than the GAAP sell-in. And we’ve had a lot of confusion expressed by investors about sell-in and sell-through and which one are we referencing?

So I think we have decided here to just kind of stick with one and where we’re going to go is, obviously, with the appropriate use of the GAAP number.

Serge Balenger

Okay. I guess, just a follow-up on the prior guidance question. I think in the past you’ve talked about reaching cash flow positive status at some point in 2016. Does that remain a year-end target?

Greg Demopulos

Yes, certainly, that’s our objective. We continue to work hard at that. We are -- we like what we’re seeing in the sales growth. We like what we’re seeing in the adoption, as I said. It appears that we’ve really turned the corner on the clinical impediments to the adoption of the drug. I mean, you recall, when we first launched Omidria, one of the major questions was why do we need this drug? And that has been sort of soundly answered and I think the answer is clearly the use of Omidria has significant benefits for the patient but for also for the surgeon. And so when we see this, when we see the traction we’re getting on the reimbursement side, we’re pleased with how things are moving with Omidria. And our objective, again, remains our team’s objective. Certainly, internally remains to be able to fund those development programs as we exit 2016.

Serge Balenger

One last one on 721 before I go back to the queue. Do you think we should expect some of the Phase II results from the AHUS patients at some point this year?

Greg Demopulos

The Phase II from the AHUS patients?

Serge Balenger

Yes.

Greg Demopulos

Potentially. I mean, I think we’re going to be putting out more data on 721 across a number of the 721 programs. You know, our focus is getting the Phase III program in AHUS enrolling.

Now, we’ve provided all of our data, which obviously is more than we’ve put out to date to both the FDA and the EMA and we’re moving ahead on the Phase III program with buy-in from both of those regulatory agencies. I expect that we’ll have something to say as well on the renal study and potentially on the TMA stem cell studies as well.

Serge Balenger

All right, thank you for the update.

Greg Demopulos

Yes, thanks, Serge.

Operator

The next question is from Liana Moussatos from Wedbush Securities. Your line is now open.

Liana Moussatos

Congratulations on your sales and I just have a couple of questions. Can you give us a -- you just mentioned releasing Phase II data on the renal diseases and the TMA stem cell-based II’s. Can you give us a little more detail on when you think that -- those data releases -- is it going to be second half, fourth quarter, next year?

Greg Demopulos

No, I actually expect that that will be in this year. So I guess in answer to your question, it will be in the second half of this year. So I think we’ll be able to put something out on those programs later this year.

Liana Moussatos

All of them? All the kidney diseases and the stem cells?

Greg Demopulos

Ah, I think again, what I’ll commit to is you’ll be seeing more data from the Phase II programs. Which we put out, that will depend on whether we run those studies to full completion, whether we stop them early for any reason, and provide information. I think the best way to answer that, Liana, is look for data coming out of those programs, out of the Phase II, 721, set of programs sometime later this year.

Liana Moussatos

Thank you very much.

Operator

Thank you. The next question is from Thomas Yip of FBR and Company. Your line is open.

Thomas Yip

Hey, good afternoon, everyone, thank you for taking my question. I just have a couple of questions mostly about Omidria for Greg. Cam you go into a little bit more specifics regarding what are some challenges that you faced when you tried to get reimbursement for Omidria?

Greg Demopulos

Sure, Thomas. I think -- look, roughly 50% of cataract procedures are Med Part B. there, there is really no challenge, to speak of; 100% of Medicare administrative contractors reimburse for Omidria. So Med Part B is readily covered. Similarly with the commercial payors, a good number of commercial payors pay for Omidria. Where they don’t, we have our “we pay the difference” program, where, on behalf of the patient, we cover the difference.

So, and that’s about another 25% of total procedures. So as I said, where we’re really having any sort of variability in reimbursement, and that’s how I would characterize it, is variability, is on the Med Advantage side. And as you know, Med Advantage by definition, in its name, Med Advantage is supposed to provide services that Med Part B does not.

Sometimes, what happens with Med Advantage is that they take the position that they cover like Med Part B, but they don’t have to reimburse or pay like Med Part B. And I know that seems like a pretty interesting semantic argument, but that’s the position that they take.

Our job is to convince Med Advantage payors that they should be paying, that they need to be paying, that it’s frankly good for them, it’s certainly good for their patients. And the other problem there that we see on occasion is -- and this is accounting for the variability -- is that even though a Med Advantage or Med Part C payor will cover and pay for Omidria, if there has been a specific contract with a specific facility to carve out reimbursement for Omidria, then that contract needs to be addressed by the facility, with that Med Part C or Med Advantage payor.

So that’s really, when I speak about the variability -- the variability can be, not just across payors, but within a specific Med Advantage payor. Whereas the Med Advantage payor may be paying some facilities, not paying other facilities due to the language, specifically in that pay -- in that facility’s contract.

Thomas Yip

Okay, so, then, you know, given it’s not a straightforward problem, what’s your primary approach in trying to resolve the issue with the profession, education, and kind of patient outreach?

Greg Demopulos

You know, we’re actually taking multiple approaches there, Thomas, and just probably, better that we not go into all the details about what we’re doing there. But as you know, we have a reimbursement team within the company. We’ve expanded that team, really, to address the Medicare Advantage. And remember, we’re talking about 25%, roughly, of -- and it varies region to region -- but we’re talking about 75%, between the Med Part B and the commercial, are really not a problem in any way.

So our focus is on that 25%. We’re taking a multipronged approach to that. But some of the things you’ve mentioned certainly fall within the approaches that we’re pursuing.

Thomas Yip

Okay, that makes sense. I just have two more questions, more about the number side. I’m looking at Omidria across goods sold in second quarter 2016 compared to first quarter 2016, and the numbers are more or less the same, does that reflect on the you know left over inventory costs there or how should we look at the costs you know for the test -- for a second half of 2016.

Mike Jacobsen

Yes this is Mike, Generally speaking I think if you use around 5% as a cost to sales. You should be in the in the general ballpark. I mean in the beginning we had some inventory that was expense prior to approval and then we had some inventory we rolled off just based on the timing of the dating of the products.

Thomas Yip

OK so that you know I guess at the first two quarter a number of them are less the same so it is because of the approval inventory.

Mike Jacobsen

Yes a little bit of that it's also a little bit to do with just some packaging materials and that kind of stuff that we expensed. So if he likes a few around 5% you’re pretty -- you're pretty accurate. It just happens to be the two came out to not even close to the same number, I think if I remember at the exact same number that list looks funny, but use the 5% You should be pretty close.

Thomas Yip

Ok that’s sounds good, one final question You guys also mention revenue per [ph] as more less un change can you remind us what the exact number is.

Greg Demopulos

Yes we haven't provided that we can tell you that ASP on that is stayed relatively close to what it came out at which is the four 65.

Thomas Yip

Okay, thank you again, sounds good. Thanks for the question and looking forward to see growth in second half.

Greg Demopulos

Thank, Thomas.

Operator

Thank you. The next question is from Jason McCarthy from Maxim Group your line is open.

Jason McCarthy

Hi this is actually Diane calling for Jason. Can you review with us the strategy to launch Omidria in Europe without a partner.

Greg Demopulos

I don't think that we've said that we plan to launch Omidria in Europe without a partner. I think you know our strategy has been that we're certainly we have a focus on partnering Omidria in Europe. Our primary focus remains on the U.S. and expanding utilization in the U.S. any partnership in Europe will be one in which OMER is receiving potentially milestone payments upfront payments but the bulk of that we would expect would be royalties.

So clearly the revenue driver for Omidria and for OMER’s is in the U.S. as we expand that market in the U.S. as we demonstrate just as we have the value of the product in the U.S. the ability to generate sales in the U.S. All of that is going to translate positively across -- across the pond to Europe and we would expect then that that will drive better terms on any kind of partnership in the in Europe.

We don't of course discuss status of any partnering discussions with Europe or for Europe or really for any of our programs not just Omidria. So I want to make sure that that that helped.

Jason McCarthy

Thank you. Are you going to be more focused on the premium or -- compared to the Cataract market.

Greg Demopulos

No, I don't see that we need to do that. Given the broad reimbursement that we're experiencing across cataract surgery even with standard lens. There's no need for us to focus only on or primarily the premium lenses. You know obviously we're focused on not just ASCs but we're focused on HOPDs and we're focused on three forty Beavis facilities. Those facilities as you know received a mandatory discount, we actually have associated with Omidria slightly larger discount than that which is required federally. And again, these are areas that we are just beginning to really tap into. So we see sales growth as I've said continuing and we see that broadly across cataract surgery, no reason at this point to limit our focus or our access in any way.

Operator

The next question is from Tyler Van Buren of Cowen and Company. Your line is open.

Tyler Van Buren

And I apologize if something similar is already asked, I'm juggling multiple calls here but we get consistent positive feedback from doctors on your Omidria sales and marketing efforts which appear to be appropriately aggressive but could you potentially go into a bit more detail in terms of the number of institutions you have signed up or have formulary approval and as well as how you plan to further increase pull through at these accounts or potential product flow to eventually further inflect the launch.

Greg Demopulos

One we don't provide the number of accounts or which accounts are using Omidria but to your question of how do we increase the pull through. I mean one is obviously new accounts. So a new facility is and we continue as I've said to focus on new accounts broadening the base of the utilization of Omidria, at the same time you know the percentage utilization at really almost any of the facilities where we are selling Omidria is not even close to being maxed out. So for example in a given facility you may have one or two physicians using but there may be another 10 who haven't yet become habitual users of Omidria and even within a given practice, so even a specific surgeon may be using Omidria only 15% to 20%, 10% to 20% of that physicians current procedural volume. So the way that we're really looking at pull through is again a multi-pronged approach one is accessing and adding new accounts. So new facilities but also within those facilities driving utilization across a broader number of surgeons and within specific surgeons increasing their utilization from perhaps 10%, 15%, 20% to 50%, 60%, 70% those are the objectives and you know I think we're being pretty successful at doing that. So it's really the approach, the strategy to that and then specifically the tactics are multilevel and depending on specifically what challenges we're facing.

Operator

The next question is from [indiscernible] of Cantor. Your line is open.

Unidentified Analyst

I was wondering if you could give us a little bit of guidance for the second half R&D and SG&A spend. On the R&D line I saw a significant decline from $15 million to $10 million roughly, how should we think about this line item specifically and maybe combined operating expenses going forward in this second half.

Greg Demopulos

One I think we manage expenses very tightly here. As you know we have strong project management we have strong development. We look closely at what we spend and we monitor closely what we spend and how to get the most out of out of the least amount of capital and I think we've shown a pretty good track record of doing that. I think that what you've seen in this quarter is a reflection of just that . I don't expect our approach or philosophy to change going forward. You know as additional work in 721 ramps up one could expect to potentially see higher R&D cost than what you saw this quarter but again we continue to -- remember we have a number of nobs on the dashboard that we can dial up or down with pretty tight precision to manage our expenses and we do that. So they could be higher I think as Mike said in his presentation that R&D cost may move higher in the second half of this year but again let's see. We continue to try to wretch it those down while still being able to move all of these programs ahead without a hitch.

Unidentified Analyst

And since we’re half of the third quarter the moment you experienced in the second quarter you see it carry through during this first six weeks if you have that information?

Greg Demopulos

Again I'm going to avoid any guidance there [indiscernible] other than to say what I’ve already said which is we’re comfortable with the sales growth that we’re seeing with Omidria.

Unidentified Analyst

Okay. And just one last one. What would be the nature of the update on the GPCR [ph] program if you could characterize it in any way?

Greg Demopulos

Again I want to be careful about providing any guidance there. But obviously when we put out information we think that the information we’re putting out is meaningful and is important for our shareholder to understand. I hear sometimes that we don’t put out enough information. I think our approach there is we would rather say less but say things that really are meaningful then to be issuing releases and disclosures about things that really aren't so meaningful and that shareholders then a hard time sort of shifting through what's relevant and what's not. So what we put it out I will tell you that we will believe is what we put out is relevant, we expect that shareholders will find it relevant as well.

Operator

Thank you. And at this time I would like to turn the call back over to Dr. Demopulos for closing remark.

Greg Demopulos

All right, well again thank you everyone for taking the time this afternoon to listen into the call. We’re again pleased with the outcome of this quarter and we have more information to share with you on a good number of our programs as the year continues to unfold. So as always just like to let you know that we do sincerely appreciate your continued interest and support in Omeros and have a good day everyone. Thank you.

Operator

Thank you. Ladies and gentlemen this concludes today's conference. You may now disconnect. Good day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!