Biotech Forum: The Week Ahead

Summary

• The markets open up second quarter trading today after posting a down first quarter of 2018.
• It is a relatively light FDA calendar this week with some important PDUFA dates to take note of.
• We look at what lies ahead for the biotech sector this week as well as post a 'stock watch' overview on Omeros in the paragraphs below.

One cannot be brave who has no fear." - Marissa Meyer, Renegades

It was another tumultuous week for the market. The equity market turned very volatile in the first quarter of this year after being in non-stop rally mode since the presidential election, as we closed out the opening stanza of the year on a high note, with the Dow climbing some 250 points Thursday before the long holiday weekend.

Overall, the market posted slight gains for the week. The last hour of the trading day continues to be the most volatile one of the day as passive ETFs and funds re-balance on a daily basis.

The biotech indices moved up and down throughout the week but largely ended the week where they began. Hopefully, when first quarter earnings results start to hit the wires in a few weeks, they will help to stabilize the market.

There are no major healthcare conferences on the agenda this week that I am aware of. There are a few items on the FDA calendar, however.

Keytruda from Merck (MRK) has a supplemental BLA (Biologic License Application) to be approved to treat Relapsed or Refractory Primary Mediastinal Large B-Cell Lymphoma on Tuesday.

EXPAREL from Pacira Pharmaceuticals (PCRX) has a Friday supplemental NDA date with the FDA seeking approval as a single-dose injection femoral nerve block for total knee arthroplasty surgery. An Ad Comm Panel voted 6-4 against recommending for approval in mid-February. Getting the green light from the FDA is therefore 'iffy' at best.

Finally, also on Friday, Clovis Oncology (CLVS) hopes to see its compound Rucaparib get FDA approval to treat ovarian cancer patients with a BRCA-like mutation. Phase 3 data was released last June and met its primary endpoint.

All governments suffer a recurring problem: Power attracts pathological personalities. It is not that power corrupts but that it is magnetic to the corruptible." ― Frank Herbert

Stock Watch:

It has been a rough nine months for shareholders of Omeros (OMER). This 'Tier 3' concern has been targeted by a couple of what I would call 'hit pieces' by entities that had a short position in the stock.

Each time a short piece has been published and highlighted on SA, it has caused an approximate 50% decline in the stock. More importantly, the thesis of both hit pieces has now proven to be inaccurate. In the first attack, the infamous Art Doyle (who is being sued by the company) alleged that trial results from OMS721 were fraudulent. That has been disproved by the continued advancement of this drug in trials across multiple indications. A recent article alleged that Omidria would have next to no shot to be granted 'pass through' status which would crater sales and impact whether OMS721 development could continue to be funded without further dilution to shareholders that would come from a capital raise. Specifically, the article stated,

We believe legislative options to extend OMIDRIA reimbursement status are now effectively dead, as Congress dealt with healthcare spending in the Bipartisan Budget Act of 2018 that was signed into law on February 9. We believe OMER management squandered an opportunity to secure a pricing model independent of the 'transitional' Medicare program and continued promoting legislative and regulatory solutions for reimbursement even though there appeared to be a very low chance of success, given CMS explicitly denied the Company's requests to extend the pass-through period for OMIDRIA on multiple occasions. Without OMIDRIA, Omeros faces a potential funding shortfall of $400 million over the next four years

Fortunately, for shareholders of Omeros, this was just rectified in the proposed spending bill in congress which is on its way to passage. This should limit the impact of falling Omidria sales to three quarters (Pass-through status starts again in October) instead of being a permanent status.

The stock rallied strongly on this news but gave back a good portion of those gains last week.

Verdict:

Shareholders can now get back to focusing on the huge potential of OMS721 instead of any near-term potential funding concerns. This possible blockbuster drug candidate has posted robust data for the three of the five potential indications it is being targeted at. This was covered in a recent piece by another SA contributor.

The company still has some potential funding issues that may need to be addressed sometime this year. However, losing 'pass-through' status for nine months on Omidria is definitely preferable to losing the status permanently. I think the best way to add exposure to this name in the meantime is via a Buy-Write order that offers some risk mitigation and takes advantage of the lucrative option premiums available on the stock.

The more laws that are created, the closer we get to lawlessness." ― J.S.B. Morse

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Analyst’s Disclosure: I am/we are long CLVS, OMER. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.