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Omeros' Pipeline Is Largely Neglected

Summary

My medium-term thesis on Omeros is mostly based on Omidria and its growth prospects, but the pipeline also has significant potential.

The two late-stage candidates and their potential contribution in the following years remain largely neglected by the investing community.

The company delivered a presentation on Needham’s Healthcare Conference last week – my thoughts on some pre-clinical candidates.

Reiterating my bullish view on Omeros.

Omeros (NASDAQ:OMER) is consolidating over the last few weeks after bouncing more than 50% from late February lows. The company is increasing its focus on driving higher Omidria sales this year. I wrote at length about Omidria and its progress and growth prospects in my previous articles and my medium-term thesis is based on its rapid market adoption and robust sales growth. On the other hand, Omeros' pipeline seems largely neglected. OMS721 has the potential for accelerated approval and OMS824 has resumed phase 2 trials in Huntington's and may soon resume phase 2 trials in Schizophrenia. I listened to the company's presentation at Needham's Healthcare Conference last week and am now even more convinced about its long-term upside potential. The company plans to advance several products into the clinic in 2017 and there are some interesting candidates with significant unmet need and with large addressable markets.

Quick update on Omidria

I wrote about Omidria at length in my previous articles and will just provide a quick update after the company's presentation at Needham's Healthcare Conference last week:

  • Management delivered a lengthy presentation on Omidria's efficacy and safety. I have nothing to add here and still believe that Omidria's uptake should accelerate based on positive surgeon feedback and the increasing evidence of its efficacy and safety in physician-conducted studies.
  • Expanding reimbursement coverage based on the company's OMIDRIAssure program.
  • Increased sales push through an expanded sales team which has moved in-house as of January 1, 2016. Precision Lens was hired to cover the "Square States" - they are active as of late Q1. I expect the growth based on these two initiatives to pick up in Q2 and beyond.
  • EU expansion - it's long overdue - the company plans to sign one or more partnerships in the EU, but the timeline is still not specific. This could be a significant catalyst for the stock, especially if the partner is a large and established player in the EU and if milestone payments are significant enough to offset the still existent fear of dilution.
  • The company noted that it expects to become cash flow positive "later this year" - which represents a slight change from the earlier "mid-year" statement. I have this baked into my expectations and still think that the current analyst consensus is conservative and that estimates should rise after the Q1 report.

Pipeline remains largely neglected

One has to wonder about the efficacy of public markets when looking at Omeros' valuation. This is especially true if we compare Omeros' market cap, product portfolio and pipeline to some pre-clinical stage biotech companies. For example, Editas (NASDAQ:EDIT) has a market cap of $1.4 billion and no clinical stage candidates (although it has a very promising technology for gene editing) while Omeros' market cap is just north of $500 million with the company having a marketed product with rapidly growing sales (Omidria), one candidate in phase 3 trials and in several phase 2 programs (OMS721), one product with one phase 2 trial and potentially one more (OMS824) and several early stage and pre-clinical candidates with large addressable markets.

Source: Omeros presentation

The most important things to consider with OMS721 ('721 for convenience) and OMS824 ('824 for convenience) are:

  • '721 is a potentially safer alternative to...

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