Omeros Stock: Taking It To The Max (NASDAQ:OMER)

Omeros (NASDAQ:OMER) has been a tough hold this year, although I continue to expect it to prove its worth to its shareholders over the long run. Indeed the long run has been its dilemma. In this article I report on its latest clever deal which will extend its near-term liquidity without diluting its shareholders.

Omeros’ price action over recent quarters has been distressing.

I first wrote on Omeros back in 2018 in “Omeros: Beauty And The Beast”. At the time, Omeros, trading at $11.06, was facing reimbursement issues with its FDA approved OMIDRIA (phenylephrine and ketorolac intraocular solution). Its narsoplimab (OMS721, MASP-2 inhibitor) was basking with favorable FDA attention.

The FDA awarded key designations (orphan, fast track, and breakthrough therapy) to its three phase 3 programs. I have followed Omeros closely ever since. Omeros’ price has varied over this span, occasionally spiking >$24. It has rarely traded <$10 during this period with one notable exception.

It was dealt a serious blow on 10/01/2021 when the FDA advised of unspecified deficiencies in its marketing application for narsoplimab in HSCT-TMA. It has traded <$10 ever since. Indeed it has predominantly traded <$5.00 since 4/18/2022 and has even dipped below $2.00.

Ouch. Has Omeros become a zombie stock, one of those doomed unfortunates living off the grace of fast disappearing near 0% interest rates? By my reckoning the answer is a resounding no. Its debt is manageable. It has $95 million in 6.25% debt due in 11/2023 and $225 million in 5.25% debt due in 02/2026 (Q2, 2022 10-Q p. 16-17). Omeros’ liquidity situation and risks are discussed in greater detail below.

OMER’s ongoing sparring with the FDA shows no sign of letting up.

Omeros’ BLA for narsoplimab in treatment of HSCT-TMA seemed like a lock. There are no FDA approved treatments for HSCT-TMA. It is an expensive disease to treat and can be fatal. Narsoplimab is generally safe and well tolerated.

The FDA granted narsoplimab in treatment of HSCT-TMA breakthrough therapy, orphan, and fast track status. The FDA accepted Omeros’ BLA for filing; it granted the application Priority Review; it set a PDUFA date of 07/17/2021.

Narsoplimab had strong effectiveness credentials. A 2022 published evaluation included the following summary results for its pivotal study of patients receiving at least one dose (full analysis set [FAS]; N = 28) were analyzed.

The response rate was 61% in the FAS population. Similar responses were observed across all patient subgroups defined by baseline features, HSCT characteristics, and HSCT complications. Improvement in organ function occurred in 74% of patients in the FAS population. One-hundred-day survival after HSCT-TMA diagnosis was 68% and 94% in FAS population and responders, respectively, whereas median overall survival was 274 days in the FAS population. Narsoplimab was well tolerated, and adverse events were typical of this population, with no apparent safety signal of concern.

Everything seemed to be in place. The first hint of any problem came in 05/20/2021 with an oblique release delaying its PDUFA date by three months to 10/17/2021. This delay knocked its shares down a quick $3, from ~$18 to ~$15 from where they drifted without conviction. Thereafter the FDA issued a series of jabs creating a tableau as follows:

1. 10/01/2021, FDA notification of unspecified deficiencies in Omeros’ narsoplimab HSCT-TMA BLA.
2. 10/18/2021, FDA issues CRL.
3. 01/19/2022, Omeros advises of its response to CRL and its request for Type A meeting with FDA.
4. 03/01/2022, Q4, 2021 earnings release advising that Omeros was awaiting FDA response to its CRL rebuttal during Type A meeting held in 02/2022.
5. 05/10/2022, Q1, 2022 earnings release advising that after reviewing FDA’s delayed minutes from Type A meeting, Omeros had decided to request formal dispute resolution to break the deadlock that was then apparent.
6. 08/17/2022, Omeros advises that Omeros and the FDA met to discuss the dispute in July, and the FDA’s “deciding official is collecting additional information … [the FDA will respond] within 30 days from the date that the additional information is collected and any required follow-up is conducted by the deciding official.”

As I write on 10/04/2022, Omeros has issued no further updates. Judging by past practice no further information will be forthcoming until Q3, 2022 earnings, expected 11/09/2022.

Omeros has taken another step to maximize its OMIDRIA revenues.

No matter how exciting a new drug approval may be, it makes no difference if the company lacks the liquidity to carry the ball to the finish line. This can be particularly problematic for companies like Omeros who have a heavy expense profile as they try to carry a large pipeline of therapies in various stages of development.

In terms of expense profile, Omeros’ certainly qualifies as heavy. Its aggregate expenses for Q2, 2022 were $37.4 million compared to $45.6 million for the second quarter of 2021. Sadly, the reduction reflects a pullback in its narsoplimab launch efforts as approval no longer seems so manifestly certain and imminent.

In any case, Omeros carries an annual expense nut of ~$150 million or greater. It is generating significant value with those expenditures as it develops its narsoplimab in diverse late and middle stage trials. Additionally as reflected in its 2022 10-K, pp. 2-11, it is also developing a wide medley of other molecules in treatment of a range of indications in various stages of development.

Omeros has financed its operations with a combination of debt and equity financings plus revenues that it has earned from its one FDA approved therapy, OMIDRIA. OMIDRIA is approved as an ocular irrigating solution for cataract surgery or intraocular lens replacement.

OMIDRIA has been touch and go in terms of revenues since its 2014 approval. In 12/2021 it took the bull by the horns and made a strong out-licensing deal (the Deal”) with DRI Healthcare Trust for OMIDRIA. The deal gave it $126 million out front along with tiered royalties. It also provided for a $200 million milestone if Congress enacts a certain reimbursement mechanism.

As I write on 10/04/2022, an Omeros OMIDRIA release yesterday inspired the title to this article, “Omeros: Taking It To The Max”. The release announced Omeros’ royalty monetization deal that featured the following relating to monetizing payments under the Deal:

1. Omeros receives $125 million upon closing estimated to equal 1/3 of royalties under the Deal,
2. Omeros retains annual royalties exceeding annual capped amount owing to RPI,
3. Omeros retains right to the milestone,
4. Omeros has no obligation to DRI aside from specified capped royalty, if paid.

This is a sweet deal. The caps are set such that RPI will only recoup its $125 million in 2028, meaning that the deal will be accretive to Omeros’ overall liquidity until that date.

Conclusion

I have hypothesized that Omeros is not likely to find itself among the walking dead as a zombie company struggling to refinance debt in a rising rate environment. Its OMIDRIA revenues, maximized as they may be, will, alone never offer sufficient protection from this fate.

Omeros’ pipeline to which it currently owns worldwide rights, in some cases in-licensed, is where the value in Omeros truly resides. Obviously if it is able to wrangle an approval for narsoplimab in treatment of HSCT-TMA, it will be in a strong position. If not, its pipeline has breadth and depth that should permit it to negotiate deals that will protect it from becoming a zombie.