Last week, I had the pleasure of interviewing Mr. Jason Kolbert, a Senior Vice President and Senior Biotechnology analyst of Maxim Group LLC about Omeros Corporation (OMER), an emerging biopharmaceutical/specialty pharma company which I believe represents an undervalued opportunity, and will offer compelling value to investors given its upcoming catalysts.
The company is currently preparing to submit a New Drug Application (NDA) for its lead product candidate (OMS302) for patients undergoing intraocular lens replacement surgery. OMS302 is a proprietary combination of ketorolac, an anti-inflammatory agent, and phenylephrine, a mydriatic (pupil dilating) agent. In two Phase 3 clinical trials, OMS302 has demonstrated very strong statistical significance at both of its co-primary endpoints - maintenance of mydriasis and reduction of pain. The company plans to file the NDA in Q1:13 and anticipates a regulatory submission in Europe by mid-2013.
In addition, during this quarter, the company will present clinical data from its Phase 1 trial evaluating OMS824, the lead compound in Omeros' PDE10 program, for the treatment of schizophrenia. OMS824 selectively inhibits PDE10, an enzyme expressed in areas of the brain linked to a wide range of diseases that affect cognition. In December last year, Omeros announced promising data from the single-ascending-dose (SAD) study portion of this Phase I trial. OMS824 was well-tolerated, exhibited good systemic exposure, linear PK, and half-life consistent with QD dosing.
Mr. Kolbert is one of the leading analysts covering Omeros. He has worked extensively in the Healthcare sector as product manager for a leading pharmaceutical company, a fund manager and as an equity analyst. Prior to joining Maxim, he spent seven years at Susquehanna International Group where he managed a healthcare fund and later founded SIG's sell-side biotechnology team. Mr. Kolbert also joined Maxim after spending a year with NeoStem (NBS). In this interview, we discuss the major challenges facing the company.
Ben Yoffe: Mr. Kolbert, as you already know, Omeros plans to submit an NDA for its lead product OMS302 for eye surgery in this quarter, and Marketing Authorization Application with the European Medicines Agency in mid-2013. What are your impressions of this product?
Kolbert: My impressions are very positive because it fits easily into the existing treatment paradigm. Ophthalmic surgeons really don't have to change the way they practice in any way, and the components of OMS302 clearly result in better outcomes for the patient and therefore for the surgeon. Omeros has now reported positive data from both pivotal Phase 3 clinical trials evaluating OMS302 in patients undergoing intraocular lens replacement surgery. OMS302 met its co-primary endpoints by demonstrating statistically significant (p<0.00001) maintenance of intraoperative mydriasis (pupil dilation) and statistically significant (p=0.0002) reduction of pain in the early postoperative period. The P-values are very high which means the chances that these data are "luck" are basically zero.
Yoffe: Compared to other products in the market, does OMS302 have any benefits?
Kolbert: Other agents are used to maintain mydriasis but this tends to be done ad hoc through a wide array of non-standardized compounding formulations and methods, many containing components that are potentially harmful to the eye. OMS302 represents a product and a process that result in consistently better outcomes. Maintaining mydriasis this way, the surgeon can rely on a consistently dilated surgical field, and ketorolac contributes to the pupil dilation by inhibiting miosis through its PGE2 inhibition as well as providing the extra measure of less pain (it's an anti-inflammatory agent), and is typically not used intraoperatively. As such the ease of use, backed by clinical data, should make this very desirable versus the do it yourself, ad hoc method that surgeons have to use today. In fact, once a product is approved, we do not see compounding pharmacies, which have been under increased scrutiny recently, continuing to make their own blends, particularly given the regulatory and legal issues. We expect this to be the case for Omeros and in other examples such as Ventrus (VTUS) which now developing diltiazam. In addition, we interviewed several KOL (key opinion leaders) in the field and they all recognized an off the shelf product backed with clinical data as not only an advance in the field but one that would make their practices more competitive, recognizing that patients do shop for practices that offer the best outcomes.
Yoffe: What is the market potential for OMS302 in the U.S. and Europe?
Kolbert: I've done a lot of work on this and I'd like to present to you my model. This model is based on assumptions for OMS302 in cataracts and Premium lens markets. It does not include expansion beyond intraocular lens replacement (ILR) surgery to other procedures such as vitrectomy (surgical procedure). Over 600,000 vitrectomies were performed last year worldwide. Based on this model (conservatively speaking), global sales could reach north of $300 million by 2017.
Yoffe: Can you assign the probability of final approvals?
Kolbert: The risk of approval of OMS302 is quite low given the robust P-values associated with the primary and secondary endpoints in both pivotal trials. If I had to pin it down to a percentage I would say it's a 95% chance it's approved.
Yoffe: Another near-term catalyst for Omeros is the release of Phase 1 data (multiple dose) for OMS824 (Schizophrenia). What are your expectations, and what is the value of this product for the company?
Kolbert: This product actually has significant potential for the treatment of schizophrenia, Huntington's disease and other cognitive disorders. PDE10 is an enzyme that is expressed in areas of the brain that are strongly linked to schizophrenia and other psychotic disorders. Preclinical studies have shown that PDE10 inhibitors may address some of the limitations of currently used anti-psychotic drugs by avoiding the weight gain, improving cognition, and reducing the risk of sudden cardiac death.
Based on gene expression profiling and data from relevant animal studies, PDE10 inhibition also holds promise in Huntington's disease and a wide range of cognitive disorders.
PDE10 inhibition could expand efficacy and improve safety for the treatment of schizophrenia, Huntington's disease, and cognitive disorders. Omeros' lead compound OMS824 possesses high target potency and selectivity, a favorable PK with no significant off-target interactions, and no initial toxicology concerns.
Omeros announced promising data from the single-ascending-dose study portion of the phase 1 clinical trial (OMS824) back in December, 2012. In this successful single-ascending-dose study, OMS824 was well tolerated and demonstrated linear pharmacokinetics, a long half-life consistent with once daily dosing and good systemic exposure that, at the highest dose administered, resulted in the expected pharmacological effects in healthy subjects. With these encouraging data, Omeros has advanced OMS824 to the next stage of the Phase 1 clinical trial - the evaluation of multiple-dose administration of the compound. We expect MAD data to be available this quarter. We believe that the results of the Phase 1 OMS824 program set the stage for a modestly sized PIIa trial that can demonstrate meaningful "proof of concept" (POC) data in evaluating Positive symptoms (alone or in combination with existing anti-psychotic agents) such as hallucinations, delusions and related audio/visual effects, Negative symptoms (affects such as withdrawal and disassociated behavior) and/or the impact on cognition.
As such we conclude that Omeros' PDE10 inhibitor, OMS824, is an ideal example of Omeros' robust pipeline that has tremendous potential, and yet investors are rewarding the company with no valuation. It strikes us that based on selectivity, pharmacokinetic data expected dosing frequency and side-effect profile, and other clinical parameters, there appears to be no better PDE10 inhibitor other than OMS824 in development
Yoffe: The company expects to initiate a second Phase 3 study of OMS103HP in meniscectomy knee surgery in the first half of 2013. After it failed to meet its primary endpoint in first Phase 3 trial, what are your expectations for the product?
Kolbert: OMS103HP missed its primary endpoint (KOOS), but what investors should note is that it did meet its secondary endpoint (pain) with a low p-value (p=0.0003). We know that pain is directly related to inflammation and the surgical process itself. The unique properties of ketoprofen (NSAID), amitriptyline (tricyclic antidepressant for postherpetic neuralgia), and oxymetazoline (ophthalmic/nasal decongestant) combine to reduce inflammation through COX I/II inhibition, inhibition of biogenic amines (e.g., histamine and serotonin), and inhibition of neurogenic inflammation and vasodilation (less bleeding), respectively. So pain is relevant! Investors should not be dissuaded by the fact that the phase III trial missed on KOOS. Pain was measured using the VAS (visual analog score) - AUC (area under the curve) metric. This is an FDA standard. Well-known drugs approved using this scale include Celebrex, Simponi, Enbrel (Ankylosing Spondylitis), Savella (milnacipran) for Fibromyalgia, and Zofran (ondansetron) for the prevention of postoperative nausea/vomiting (used VAS to assess severity of nausea/vomiting), and Firazyr (icatibant) for the treatment of acute attacks of hereditary angioedema, (used symptom relief VAS).
Pain-related approvals that used a numerical rating scale (usually 0-10) as a primary endpoint also include: Exparel (bupivacaine) - Pacira - for single-dose infiltration into the surgical site to produce postsurgical analgesia; Cymbalta (duloxetine) for DPNP; Lyrica (pregabalin) for fibromyalgia; Nucynta (tapentadol) for relief of moderate to severe pain; and Flector Patch (diclofenacepolamine topical patch) for the topical treatment of acute pain due to minor strains, sprains, and contusions.
KOOS versus PAIN? The primary endpoint for this trial was the performance on the symptoms domain of the Knee Injury and Osteoarthritis Outcome Score or KOOS. KOOS consists of five subscales: pain, other symptoms, function in daily living, function in sport and recreation, and knee-related quality of life. Going forward, we see "Pain" as a lower risk "single primary" endpoint. We also see value here when one considers less opioid use occurred in the treated group (more than twice as many OMS103HP-treated patients took no opioids in the early postoperative period). The FDA is likely to view a pain metric as highly relevant.
We believe Omeros now has a plan to minimize both risk and time to market. We expect the company will run two phase III trials in parallel with the PAIN (VAS-AUC) endpoint. We believe the risk of these trials not working is low based on the consistent data in the prior PII and now PIII trial sets. As such we believe OMS103HP can be a substantial product for Omeros.
Yoffe: Are there any other significant developments in Omeros's clinical-stage pipeline?
Kolbert: Yes, that's what is so amazing about Omeros. In addition to what I believe is one of the premier addiction franchises in the industry with Omeros' PDE7 and PPAR gamma programs, let me just highlight two of the programs where I'm also excited. The first is the MASP-2 program: OMS721 and the second is the Plasmin program: OMS616.
Alexion's (ALXN) Soliris is the brand name for the antibody eculizumab, which is currently approved in the United States and Europe, as well as a number of other major markets for the treatment of the rare blood disorder paroxysmal nocturnal hemoglobinuria (PNH). Since initial commercialization in 2007, Soliris has generated over $400 million in worldwide sales - and sales are still growing. Soliris is one of the most expensive commercially approved drugs at approximately $400,000 per patient per year. The drug works by targeting a component of the immune system that causes PNH and is administered as a 35-minute or longer intravenous infusion. Dosing begins at 600 mg every week for four weeks followed by 900 mg every two weeks.
The first series of clinical studies of eculizumab was in patients with rheumatoid arthritis, and in patients with lupus nephritis as far back as 1998. A series of other indications (including membranous nephritis, psoriasis, dermatomyositis and bullous pemphigoid), was examined over the years. The most compelling clinical results came in studies of patients with PNH, a rare blood disorder in which the host immune system attacks red blood cells (RBCs). This program took precedent over other indications and eventually led to Soliris' approval. Today, Soliris has changed the treatment paradigm for patients with PNH.
In comparison to Soliris, MASP-2 acts at the top of the lectin-dependent pathway and has no interference with the classical pathway (antibody-dependent classical complement activation). Indications for MASP-2 range from age-related macular degeneration to ischemia reperfusion injury (which typically follows organ transplant, myocardial infarction, coronary artery bypass grafts, aortic aneurysm repair, stroke, and gastro-intestinal vascular injury as well as aHUS, PNH, TTP and HUS). Other favorable attributes relate to the potential to deliver MASP-2 antibodies systemically (e,g,, subcutaneously), a therapeutic potential at a low effective dose, and a low cost of goods. A MASP-2 candidate (OMS721) has been selected for clinical development and an IND is expected to be filed next quarter.
Near-term value drivers for this program include the demonstration in animal toxicology studies that OMS721 can be delivered subcutaneously with adequate plasma levels and bioavailability. This would differentiate OMS721 from the IV-administered Soliris; and of course the subsequent demonstration of efficacy in a patient.
The second program, which I'm excited about, is the Plasmin program: OMS616. OMS616, Omeros' plasmin inhibitor, could provide a novel approach to the control of bleeding from coagulopathies associated with trauma, major surgery (e.g., coronary artery bypass graft) and liver disease, including alcoholic cirrhosis. Antifibrinolytic agents have utility in the management of major trauma in reducing hemorrhage and improving outcome. The antifibrinolytic agents currently marketed include aprotinin, tranexamic acid (TXA) and e-aminocaproic acid (EACA). Of these, the bovine protein aprotinin has the best activity in the control of bleeding, but its use has been controversial due to safety concerns of increased mortality compared to TXA and EACA in cardiac surgical patients; aprotinin also causes anaphylaxis and renal dysfunction. TXA is associated with seizures that adversely affect outcome. EACA is also associated with seizures and renal dysfunction. OMS616, currently in development by Omeros, is a novel antifibrinolytic human protein that selectively inhibits plasmin and, in human plasma, is at least as effective as aprotinin. Because OMS616 is derived from a naturally occurring human protein and is designed to avoid off-target activity, it is not expected to have the known safety liabilities (e.g., hypersensitivity, renal toxicity and seziures) of aprotinin, TXA and EACA. OMS616 has the potential to become the best-in-class antifibrinolytic agent. Omeros has initiated scale-up activities of its lead anti-fibrinolytic compound inpreparation for clinical trials.
Yoffe: What is the financial picture of Omeros? Does the company have sufficient liquidity to get through the upcoming targets?
Kolbert: Omeros raised capital this past summer and now has a solid balance sheet (an estimated $30 MM) at years end 2012. This should be plenty of capital for them to get through the two PIII trials for OMS103HP and support the filing of OMS302. In addition we could see a partnership around OMS302, or any of its other development programs, bring in capital. We have also not talked about the GPCR platform at Omeros. Suffice to say, Omeros may be in a position to bring in additional capital by licensing some of the unlocked GPCR receptors. With that said, our valuation assumes additional raises are needed before Omeros is self-sustaining, and it's built into our model.
Yoffe: In closing, what is your rating and price target for OMER?
Kolbert: We have a Buy Rating and our published price target is $25. I use a blend of three metrics, a free cash flow to the firm (FCFF) model, a discounted EPS model and a sum of the parts model and then equal weight each metric for an average which suggests a $25 price target. Our model assumes no revenues for OMS103HP (knee) and assumes OMS302 first year of full sales is in 2015.