Omeros: The Weight Of The Wait, A Conundrum

Summary

• Omeros' OMIDRIA sale has substantially improved its financial prospects.
• Omeros' CRL gangplank is agonizing for shareholders as they wait for FDA response to its type A meeting.
• Omeros' growing short interest and its sinking share price will likely continue until it provides positive feedback on its FDA interactions.

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Omeros (NASDAQ:OMER) is a long term favorite that has fallen on hard times. In this article I update the status of its OMIDRIA (phenylephrine and ketorolac intraocular solution) sale and of its CRL for narsoplimab (OMS721; MASP-2 Inhibitor, Lectin Pathway).

I evaluate its financial posture and the conundrum that is weighing on its shares.

Omeros cleared its decks with its savvy OMIDRIA sale

Conceptually OMIDRIA could have set Omeros in a spectacular situation where its revenues funded the bulk of Omeros' more exciting pipeline drugs. A quirk in Medicare reimbursement practices kept that dream from ever being realized.

Omeros' initial OMIDRIA revenues were nominal in its first year on the market following its 05/2014 FDA approval. They built up with hefty annual percentage increases, rising to >$64 million in 2017. They dropped back to a disappointing ~$29 million in 2018 when Medicare messed with its reimbursement.

From that point forward they recovered when reimbursement permitted as shown below:

Omeros 2022 10-K (seekingalpha.com)

Omeros' latest Q4, 2021 earnings call (the "Call"), updates its results following its clever 12/2021 deal out-licensing OMIDRIA to Rayner Surgical. As described in the Call Omeros received the following deal benefits:

1. ~$126 million in cash out front,
2. retained ~$39 million in OMIDRIA receivables,
3. milestone of $200 million if "before 2025, separate payment for OMIDRIA is secured for a continuous period of at least four years",
4. royalties of 50% of net US sales until earlier of 2025 or receipt of $200 million milestone,
5. thereafter 30% royalties on US net sales until patent expiration,
6. 15% royalties on OMIDRIA net sales outside the US until expiration of relevant patents.

In addition to these payment benefits, the deal also called for an offloading of Omeros's OMIDRIA sales operation which has generated an average >$29 million in aggregate annual expense over the last three years.

The OMIDRIA deal left Omeros in a relatively comfortable cash position as of the close of 2021 described as follows in the Call:

As of year-end, we had [$]157 million of cash, cash equivalents, and short-term investments and [$]38 million in accounts receivable. This combination ... brings our effective cash and accounts receivable at year-end to $195 million.

Also during the Call, CEO Demopulos pegged its cash runway plus royalties as sufficient to take it to late 2023.

Omeros CRL setback has shareholders on tenterhooks awaiting a response to its FDA type A meeting

Omeros was trading at a market cap of ~$1.3 billion when I rated it a buy in 02/2021's "Omeros: On A Tear, More To Come". At the time the FDA had recently accepted its' narsoplimab BLA in treatment of stem cell TMA, setting a PDUFA date of 7/17/21.

Things were looking sweet. An optimistic read of its OMIDRIA asset alone covered the bulk of its market cap. That left its pipeline of late stage narsoplimab indications woefully undervalued, particularly with its looming PDUFA for Stem cell TMA seeming to derisk its lead therapy narsoplimab.

That was then, now 05/02/2022 as I write, is now; things are looking decidedly less cheery at the moment. The situation began to unravel following its 05/2021 press release delaying its stem cell TMA PDUFA action date three months until 10/17/2021.

As the extended date approached, the FDA hit Omeros with still another cropper; on 10/01/2021, Omeros issued a cryptic release citing unspecified concerns with its BLA whereby the FDA:

...identified deficiencies that preclude discussion of labeling and post-marketing requirements/commitments at this time. FDA stated that the notification does not reflect a final decision on the information under review.

It was a scant two weeks later, on 10/18/2021, when the FDA actually dropped its CRL bomb on Omeros.

Omeros shares are hostage to the FDA's response to its Type A meeting

The impact on of these events on Omeros' share price has been swift and severe as shown by its chart below:

Data by YCharts

CRL's (Complete Response Letter) are agonizing. They derail pharmas, particularly small ones like Omeros, just when they are most vulnerable. According to one specialty publication, CRL's delay has impacted drug's market entry by an average of 14 months.

How long Omeros' CRL takes to resolve will depend to a great extent on how effective Omeros is in addressing the FDA's concerns. It took its first big step in 01/2022 when it submitted its CRL response and request for a Type A meeting to the FDA comprising:

...a comprehensive briefing package drafted in close collaboration with external clinical, regulatory and legal experts that addresses in detail the points raised by FDA in its CRL for narsoplimab. Omeros concurrently requested a Type A meeting with FDA to resolve any outstanding items.

Such meetings should be scheduled within 30 days of the request. Additionally FDA guidance specifies:

X. DOCUMENTATION OF MEETINGS Documentation of meeting outcomes, agreements, disagreements, and action items is critical to ensuring that this information is preserved for meeting attendees and future reference. FDA minutes are the official record of the meeting. The official, finalized minutes will be issued to all FDA attendees (with copies to appropriate files) and to the sponsor or applicant within 30 days of the meeting.

This FDA guidance creates a bit of a conundrum which I have been unable to resolve as I write on 05/02/2022.

During the Call, which took place on 03/01/2022, CEO Demopulos confirmed that a Type A meeting occurred in February. He characterized the meeting as constructive. He stated that Omeros was awaiting feedback and would provide updates when it had "more information and clarity".

I have a problem at this point which seems to be one that is more broadly impacting Omeros' shares. Short interest is rising. Omeros shares are approaching all-time lows. Given that Omeros had its Type A meeting in February, we are now at least a full two months past the meeting date.

Conclusion

I am an Omeros bull. I have changed into a long Omeros position in my speculative biotech portfolio. The matador's cape has me thoroughly befuddled on this one. Why oh why has there been no recent press release reporting on the FDA's response to the Type A meeting? I must be missing something, but what?

I welcome constructive comments, particularly ones that go beyond excoriation of me or of management.

Thanks to all for reading and GLTA.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of OMER either through stock ownership, options, or other derivatives. 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.

I may buy or sell interests in any company mentioned over the next 72 hours.