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Omeros Corporation: Far More Than Meets The Eye

Apr. 06, 2018 12:39 PM ETOmeros Corporation (OMER)40 Comments


  • On 2/14/18, FourWorld Capital Management LLC published a report that put forth serious claims against Omeros' business prospects, projecting drastically deteriorating corporate revenues which would be imminent and unavoidable.
  • We present an opposing viewpoint which balances an analysis of Omeros' financial position, particularly in light of significant recent developments, against remaining risks.
  • We believe that even a worst-case scenario analysis of Omeros' business prospects will show that current investment in the company has the potential to yield significant returns.

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Omeros Corporation (NASDAQ:OMER) is a commercial-stage biopharmaceutical company that discovers and develops small-molecule and protein therapeutics and orphan indications targeting inflammation, coagulopathies, and disorders of the central nervous system. The company has a diverse pipeline that most prominently features OMS721, which is currently in Phase 3 programs for three separate indications: Atypical Hemolytic Uremic Syndrome (aHUS), Immunoglobin A Nephropathy (IgAN) and Stem Cell Transplant-Associated TMA (SCT-TMA). However, Omeros comes by its commercial-stage status via its sole FDA-approved drug, OMIDRIA (phenylephrine and ketorolac injection) 1%/0.3%, which is marketed for use during cataract surgery or intraocular lens (IOL) replacement to maintain pupil size by preventing intraoperative miosis (pupil constriction) and to reduce postoperative ocular pain.

Source: www.omeros.com/pipeline/pipeline.htm

The Centers for Medicare and Medicaid Services (CMS) granted pass-through reimbursement status to OMIDRIA, effective January 2015, with such status scheduled to expire three years, hence, on December 31, 2017. Pass-through status is desirable as it provides for Medicare's separate payment for the pass-through product, over and above regular bundled facility fees, when used in ambulatory surgery centers (ASCs) or in hospital outpatient departments (OPDs).

OMIDRIA sales, currently Omeros' sole revenue source, have come to play an increasingly significant role in funding the company's day-to-day operations, including all-important development of the clinical pipeline. Thus, the expiration of the drug's pass-through status and attendant loss of separate reimbursement, although widely anticipated, is understandably an issue that bears thoughtful consideration by those interested in the Omeros story.

In this article, we attempt to put forth a balanced analysis

This article was written by

I am a licensed attorney with a B.S. in Economics from the Wharton School. I look for opportunities to invest in growing companies, especially if I feel that they are currently misunderstood in one or more aspects. Much of the PTI portfolio is made up of high-growth, high-volatility equities, both domestic and international. While such investments will often test one's mettle in the short term, I believe that these companies offer significant potential for outsized growth when viewed with a long-term perspective. ----------------Have the courage of your convictions, the humility to admit that you were wrong, and the wisdom to tell the difference between the two.

Analyst’s Disclosure: I am/we are long 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (40)

Otter Investment profile picture
OMER - stronger than ever and the price is right. Let the market keep undervaluing this gem because I am buying quantity. Shorts will eventually be panic mode, just a matter of when....
Persimmon Tree Investments profile picture
FDA grants breakthrough therapy designation for OMS721 for the treatment of high-risk HSCT-TMA:

FDA Grants Breakthrough Therapy Designation To Omeros' MASP-2 Inhibitor OMS721 For The Treatment Of High-Risk Hematopoietic Stem Cell Transplant-Associated Thrombotic Microangiopathy >OMER
BY Dow Jones & Company, Inc.
— 2:15 PM ET 04/26/2018
FDA Grants Breakthrough Therapy Designation to Omeros' ( OMER
) MASP-2 Inhibitor OMS721 for the Treatment of High-Risk Hematopoietic Stem Cell Transplant-Associated Thrombotic Microangiopathy

-- Discussions Ongoing with FDA and European Regulators for Expedited Approval -- SEATTLE--(BUSINESS WIRE)--April 26, 2018--

Omeros Corporation ( OMER
) today announced that the U.S. Food and Drug Administration (FDA) has granted breakthrough therapy designation to OMS721 for the treatment of patients with high-risk hematopoietic stem cell transplant-associated thrombotic microangiopathy (HSCT-TMA), specifically those patients who have persistent TMA despite modification of immunosuppressive therapy. This is the second breakthrough therapy drug designation for OMS721, which last year received the designation from FDA for the treatment of Immunoglobulin A (IgA) nephropathy. OMS721 is Omeros' ( OMER
) lead human monoclonal antibody targeting mannan-binding lectin-associated serine protease-2 (MASP-2), the effector enzyme of the lectin pathway of the complement system.

"TMA is an increasingly common complication following stem cell transplantation and is devastating when conservative treatment of immunosuppressive modification fails," stated Rafael Duarte, M.D., Ph.D., F.R.C.P.(Lon), Associate Professor, Head of Hematopoietic Transplantation and Hemato-oncology Section, University Hospital Puerta de Hierro Majadahonda, Madrid, Spain, and Secretary of the European Society for Blood and Marrow Transplantation. "Patients with HSCT-TMA who cannot undergo or do not respond to modification of immunosuppressive therapy are at very high risk of death from this complication. Currently, there is no approved treatment for HSCT-TMA, which remains one of the most pressing therapeutic needs in the field of HSCT. The impressive effect on survival and other results seen in OMS721- treated patients are quickly apparent following initiation of OMS721 therapy and can't be explained by other factors. The HSCT community looks forward to the drug's broad availability for our patients."

Breakthrough therapy designation was granted based on data from Omeros' ( OMER ) Phase 2 clinical trial evaluating OMS721 in patients with high-risk HSCT-TMA. To be eligible for enrollment in the clinical trial, HSCT-TMA patients are required to be adults with post-transplant TMA persisting for at least two weeks following immunosuppressive regimen modification (conservative treatment) or more than 30 days post-transplant. This population was chosen to represent a population at risk for poor outcomes, including mortality. These patients often have serious, life threatening co-existing conditions, and mortality rates have been reported to be as high as 100 percent. As reported previously, the estimated median survival for OMS721-treated patients was an order of magnitude greater than that for a matched historical control (p< 0.0001). Further analysis of the data examined 100-day mortality, an important endpoint previously used as an approval endpoint in HSCT. That analysis also showed that OMS721-treated patients had improved survival relative to the historical control (53% vs 10%; p = 0.0002). As previously reported, biomarkers of disease (i.e., mean platelet count and mean levels of lactate dehydrogenase and haptoglobin) demonstrated statistically significant improvement. Study patients also showed substantial improvement in red blood cell and platelet transfusion requirements. Other serious co- existing conditions in the patients treated with OMS721 included graft versus host disease (GvHD), cytomegalovirus and human herpes virus 6 infections, prior sepsis, diffuse alveolar hemorrhage, and residual underlying malignancies.

"I have treated several stem-cell TMA patients with OMS721 and seen marked and unexpected improvements that can't be otherwise explained," stated Professor Alessandro Rambaldi, from the University of Milan and Director of Department of Hematology and Oncology, Azienda Ospedaliera Papa Giovanni XXIII. "Most notable was a deteriorating patient with co- existing GVHD, TMA and neurological disability that confined him to bedridden hospitalization. Following treatment with OMS721, his TMA resolved quickly and his neurological status progressively improved, allowing him to leave the hospital and return to part-time work. This effect on TMA was observed in the absence of other specific treatments. The improvement seen in my patients has convinced me that lectin pathway inhibition by OMS721 is a scientifically sound and highly promising treatment strategy for a range of disorders associated with endothelial cell injury that commonly occur following stem cell transplantation."

FDA's breakthrough therapy designation enables expedited development and review of a drug candidate for the treatment of a serious or life-threatening disease. Preliminary clinical evidence indicating that the drug may demonstrate substantial improvement over existing therapies is required. Benefits of breakthrough therapy designation include the eligibility for priority review of the application and rolling submission of portions of the application. FDA works closely with the company to provide guidance to determine the most efficient route to approval.

"High-risk TMA following hematopoietic stem cell transplant carries an extremely high mortality rate, and no treatments are approved for this devastating disorder," stated Gregory A. Demopulos, chairman and chief executive officer of Omeros ( OMER
). "We appreciate FDA's recognition of the potential for OMS721 to improve outcomes -- most importantly survival -- for these patients, and we look forward to working closely with the Agency to accelerate the development and approval of OMS721."

Persistent thrombotic microangiopathy is a life-threatening complication of HSCT. Approximately 20,000 HSCT procedures are performed in the U.S. annually, and TMA is reported to occur in approximately 10 to 25 percent of HSCT patients. Reported mortality in high-risk patients is greater than 90%.

OMS721 is also being evaluated in ongoing Phase 3 clinical trials in IgA nephropathy and atypical hemolytic uremic syndrome. Across all clinical trials with OMS721, the drug has been well tolerated and no safety concerns have been identified.
Persimmon Tree Investments profile picture
Omeros has announced the amendment of its Credit Facility with CRG Financial:


Omeros Announces Amendment of Credit Facility
BY Business Wire

— 9:15 AM ET 04/11/2018
SEATTLE--(BUSINESS WIRE)-- Omeros Corporation today announced that it has entered into an amendment to its existing credit facility with certain affiliates of CRG LP, a healthcare-focused investment firm. With respect to the twelve-month period beginning on January 1, 2018, the amendment deems Omeros (OMER) to have met the financial covenants requiring the company to achieve a minimum net revenue or market capitalization amount. The net revenue and market capitalization covenants will continue to apply for 2019 and subsequent years, but the minimum market capitalization threshold for future periods will be reduced from 6.4x to 3.0x the aggregate principal amount of loans outstanding (excluding any payment-in-kind loans). Under the credit facility, Omeros (OMER) may borrow up to an additional $45.0 million on or before May 20, 2018 at its sole discretion, subject to customary closing conditions.

In connection with the execution of the amendment, Omeros (OMER) will issue warrants to the lenders, exercisable for five years for up to 200,000 shares of the company’s common stock at an exercise price of $23.00 per share, which represents an approximately 70 percent premium to the closing price of the company’s common stock on April 6, 2018. The warrants, and underlying common stock if and when the warrants are exercised, will be subject to a one-year restriction on sale or transfer if any amount of debt remains outstanding under the credit facility.

“It’s a pleasure working with CRG – they’ve been good partners and their support enhances Omeros’ freedom to advance aggressively the expansion of our commercial product OMIDRIA and our development pipeline,” stated Gregory A. Demopulos M.D., chairman and chief executive officer of Omeros. “This amendment makes clear that the revenue and market capitalization covenants under our loan agreement have been met for 2018. In addition, Omeros (OMER) has been further protected from potential future broader market volatility by the permanent reduction in the market capitalization requirement for 2019 and beyond.”

“CRG believes in Omeros’ direction, its potential and its management’s proven ability to deliver,” stated Luke Duster, Managing Director of CRG. “With the recent extension of CMS pass-through status for OMIDRIA restoring access to this important product for Medicare beneficiaries, we expect that utilization of the product will quickly return to prior growth rates. In addition, OMS721 leads an exciting pipeline toward additional commercial opportunities in the future. We clearly support Omeros’ continued success.”


Please note Robert Laughlin's prescient article, noting the probability of such amendment.

Long OMER.
Thanks for bringing clarity to Omeros’s financial status with this article. Was hoping someone would write an article on precisely this subject matter. Then one morning I looked in my inbox and there it was.
Persimmon Tree Investments profile picture
I appreciate your saying so, rgoldsm999. Thanks again for reading.
I meant "the next biotech blowup".
Good work.Today AVXS should be a reminder of how reckless shorts sellers can be.Citron predicted that AVXS will be the next biotech blowout for 2017. That prediction is unfolding today. Where's Mako Research?
cold beef cake profile picture
Beautiful work. Thanks.
Strike profile picture
Thank you for exposing FourWorld's atrocious display of either a) Idiocy or b) Bad Faith. In the latter case it would seem they were short and should be reported to the SEC.
skwirrlmaster profile picture
This short attack goes WAY deeper than FourWorld. It has literally been economic warfare here since early 2015.

And to be completely unbiased Greg didn't help himself by overestimating how fast Omidria would catch on. Analysts lost faith a while ago I think. But Greg has proven he was right, if early (Same thing Michael Burry?), and he was right again and pulled off one of the biggest victories any Small Cap bio CEO has ever achieved for the industry as a whole.

The short money has even been (IMO) in the pockets of some of these analysts for a while. Elemer downgrades on what was effectively a beat (after margin requirements mysteriously changed a couple days before earnings to make a 16 dollar company margin restricted like a 5 dollar company) on Q2 2017. Now Liana downgrades from 47 to 19 AFTER the passthrough was reestablished when the squeeze was starting. Elemer when CF did our offering at 22 only upgraded his price from 17 to 19 lol. Hasn't piped in a word since the reimbursment. Is he still working at Cantor?
Got half my money in this, Which is stupid considering its a biotech company, but i should probably add some more.
Hang tough. You’ll be rewarded. Gl
Unless disappointing data Im in for the long run
Biotech probably less risky then the rest of market with this tariff war stuff.
ChasingHappiness profile picture
I bought in the low 20's - holding hoping my nose bleed goes away. This company is a steal right now and I'm adding a few shares for the kids.
Very well done. Thanks.
ca7711 profile picture
Great article!
The price point hesitation is all about preserving pass through pricing and a strategic success.
skwirrlmaster profile picture
How could the short position have been so wrong? I mean who would just go on the internet and LIE?!
Charles Agbakwu profile picture
They were also dead wrong about Chemours, granted lots of respected shortsellers were wrong about Chemours. Chemours ran from around $8 in mid 2016 to the high $40s today.
Persimmon Tree Investments profile picture

As ever, your OMER enthusiasm (and knowledge) precede you.
skwirrlmaster profile picture
There's being wrong about something... And knowing you're on the wrong side but lying about it FOR YEARS. The short sellers here wanted this company dead. Maybe because the interests of this company directly affect the future interests of the dialysis industry (8% of the medicare budget) and a large, high P/E orphan drug company with a lot of New England capital behind it.

Omeros succeeding makes it impossible for these trillion dollar pumpers to dump that company on PFE, GILD, JnJ etc like they were pushing for about 1 year ago.
vitullijoe profile picture
good clarity here.
Good title. Wish someone would tattoo that on 4world Capital’s collective forehead. Finally give their skulls a purpose in life.
StphnSmith profile picture
I will join these gentleman in congratulating you, Persimmon. A deep dive into a somewhat dry subject matter. Had to be done.
Persimmon Tree Investments profile picture
Thanks, StphnSmith.

And, thanks for reading, rgoldsm999.
StphnSmith profile picture
if you have the time...a deep dive into potential revenues for 721 could be a really fun article to read.
Office Rat profile picture
Terrific debut, Persimmon.
Persimmon Tree Investments profile picture
Thank you for reading, Office Rat.

More to follow...
WaterWay InCo profile picture
Well done!!
Persimmon Tree Investments profile picture
Thank you, Robert. As should go without saying, you too. I have thoroughly enjoyed each of your articles.
Awesome report. Thanks for writing!
Second that. Great detailed analysis.
WallStPirate profile picture
Outstanding, thanks
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