Omeros Corporation: What The Recent Credit Facility Amendment Foretells
- Omeros is making an aggressive comeback to reward investors. Pass-through status for Omidria is solidified with the latest regulatory development.
- Omidria’s revenues stream will continue to power further pipeline innovation.
- Recent credit facility amendment strengthened the company’s cash position and decimated any concern regarding cash constraint.
There is a complicating factor that makes the handling of investment mistakes more difficult. This is the ego in each of us. - The Father of Growth Investing (Philip Fisher)
Omeros Corporation (NASDAQ:NASDAQ:OMER) - a company that focuses on the therapeutics innovation to treat both prevalent as well as rare diseases - has been undergoing robust fundamentals improvements. In turns, the share price is rebounding aggressively in the past month. On April 11, 2018, the common shares exchanged hands $1.29 higher at $14.67 for more than 9% profits. In the past 2-weeks, the shares appreciated by 30%. In this research, we’ll elucidate the recent corporate developments that strengthened the Omeros’s fundamentals as a long-term investment.
Figure 1: Omeros stock chart. (Source: StockCharts).
Headquartered in Seattle WA, Omeros specializes in the development and commercialization of medicines to treat inflammation, complement-mediated diseases, and central nervous system disorders. Omidria (phenylephrine and ketorolac 1%/0.3%) is an approved medicine to maintain pupil size during cataract surgery and to reduce postoperative pain. There was a recent controversy that Omeros will falter due to the loss of the pass-through status that, in and of itself, enables surgeons to charge $492 (on top of the $992 standard reimbursement for the said procedure). Consequently, the stock lost roughly half of its value due to such concerns. Shareholders who did not sell out have been enjoying the drastic comeback. As alluded to, the underlying catalyst for the said share price appreciation is the approval of a bill that granted the two-year extension of the pass-through status reimbursement for Omidria by the Centers for Medicare and Medicaid Services (“CMS”).
Figure 2: Omidria (Source:Omidria.com)
That’s not all! The company, today, disclosed that it entered into an amendment for the credit facility with a healthcare-focused investment firm (“CRG LP”). Under the covenant, it was determined that Omeros met the minimum requisite revenues (or market capitalization) for the continuance to borrow up to $45M (on or before May 20 this year). Besides from the continuing application to 2019 and beyond, the agreement also lowered the requirements for Omeros. In specific, the minimum market cap was reduced from 6.4X to 3.0X the total loans outstanding.
Better yet, the changes enabled Omeros to issue warrants to its lender (exercisable for 200K common shares up to 5-year) at the price of $23 - a 70% higher than the closing price on April 06, 2018. In all likelihood, the lender believed that Omeros’s true worth (intrinsic value) is much higher than its current market valuation. In addition, there is a one-year sales restriction if the lender decided to exercise those stock options. Commenting on the turn of event, Dr. Gregory Demopulos, enthused,
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. This amendment makes clear that the revenue and market capitalization covenants under our loan agreement have been met for 2018. In addition, Omeros has been further protected from potential future broader market volatility by the permanent reduction in the market capitalization requirement for 2019 and beyond
A good investing approach that we picked up from studying Peter Lynch (in assessing whether the company is a worthwhile investment) is to check what their lenders are saying about business prospects. It’s comforting for shareholders to learn that CRG is highly confident in Omeros. According to the Managing Director (Luke Duster),
CRG believes in Omeros’s direction, its potential and its management’s proven ability to deliver. 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, OMS-721 leads an exciting pipeline toward additional commercial opportunities in the future. We clearly support Omeros’s continued success.
As alluded, Omeros is powering a robust portfolio of highly promising therapeutics (as shown in figure 3). At the heart of the pipeline is the Crown Jewel (OMS-721). As a monoclonal antibody against the mannan-binding lectin-associated serine protease-2 (MASP-2), OMS-721 is currently being investigated in four advanced-stage conditions: atypical hemolytic uremic syndrome (“aHUS”), IgA nephropathy, hematopoietic stem cell transplant-associated thrombotic microangiopathies (“HCT-HMA”), and lupus nephritis. Notably, MASP-2 is a novel proinflammatory protein target playing key roles in the regulating the complement system. And, the targeting of MASP-2 is highly likely to deliver robust clinical outcomes.
Figure 3: Therapeutic pipeline (Source: Omeros).
Notably, there is a good chance that OMS-721 will pass its clinical trials. And, we also stated in the prior research that OMS-721 should trump Soliris, a strong competing drug that procured $3.1B in fiscal 2017 for Alexion Pharmaceuticals (NASDAQ:ALXN). The main reasons are that OMS-721 has shown robust data thus far, and it’s being studied in four conditions: revenues from the separate franchises will add up significantly. As follows, the earliest results are that for the phase 2 study studying lupus nephritis, which will be posted in Dec. this year. The reporting for various phase 3 trials won’t be available until approximately in 2020.
Despite a rough ride due to concerns pertaining to Omidria prospects, the recent regulatory development is protecting its revenues. The concern about the potential cash constraint is now abated with the recent credit facility amendment. Last but not least, the probability of investor to earn multiple folds on Omeros in the long haul is uberly high. Even if you are into trading, Omeros is likely to continue its strong momentum going forward.
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