OMER - Omeros: Off To Never-Never Land

• Omeros' lead therapy, narsoplimab in treatment of High-Risk HSCT-TMA, has fumbled repeatedly in front of the FDA.
• The FDA's latest chapter in this ongoing saga spells progress with a likely high dose of delay.
• Omeros' potential expanded delay could challenge its ongoing liquidity.

Omeros ( OMER ) is one of my favorite small biotechs. I have been following its long efforts to secure FDA approval for narsoplimab, most recently in " Omeros: Follow The Bouncing Ball" (" Bouncing ").

Today (08/17/2022) as I write, the FDA has opened a new chapter in the Omeros story. In this article, I discuss the new development and its impact on Omeros as an investment.

Omeros' shareholders have been roughed up as its lead therapy struggles for FDA approval.

Omeros' timeline for narsoplimab as a treatment for HSCT-TMA in front of the FDA has been painful for shareholders. It began happily enough back in 2018 with FDA grants of breakthrough therapy and orphan drug designations . It continued up through its successful clinical trials.

It culminated with the excitement of being the first therapy in treatment of HSCT-TMA to be submitted to the FDA in 01/2021. The application was accepted. It was awarded priority review with a PDUFA date set at 07/17/2021. The FDA indicated that there would be no call for an advisory committee meeting to discuss the BLA.

Narsoplimab in treatment of HSCT-TMA seemed destined for quick approval; optimists might even have hoped for a positive nod in early 07/2021. The CDC and CMS were right in line. In early 05/2021, they approved International Classification of Diseases (ICD-10) codes for narsoplimab in treatment of HSCT-TMA to take effect in 10/2021.

During the period from 01/2018 to 09/2021, Omeros stock responded buoyantly as shown by the chart below:

It zigzagged happily between a high share price of ~$24, with a market cap approaching $1.3 billion; it sported a comfortable floor of ~$10 with a low market cap of $0.5 billion. The seer who played Omeros well, selling its enthusiasms >$20 and buying the doldrums <$12 during this three-year period did very well indeed.

It was not to be. The bloom came off the rose on 05/20/2021 when the FDA extended its action date to 10/17/2021. It gave the following as the reason for its extension:

As part of the ongoing BLA Priority Review, Omeros recently submitted a response to an FDA information request, which the health regulator has classified as a major amendment requiring additional time to review.

This was a real puzzler. During Omeros' 08/09/2021 Q2 earnings call , it offered no satisfactory explanation for the FDA's newfound hesitation. While I held to a hope that narsoplimab might still get approved in treatment of HSCT-TMA, such was not to be. On 10/18/2021, the FDA issued its dreaded CRL.

The latest word from the FDA on narsoplimab in treatment of HSCT-TMA is opaque

In response to the CRL, Omeros' management threw up its hands. It determined that there was no way to penetrate the FDA through normal channels. Instead it opted to go forward with an adversary dispute resolution process.

It submitted its dispute resolution briefing package to the FDA in early 06/2022. The process is designed to move quickly with an FDA response expected in early 08/2022. In fact, the FDA did respond as scheduled on 08/17/2022.

Unfortunately, the response was another puzzler. Omeros issued an 08/17/2022 press release advising:

Formal dispute resolution is an official pathway that enables a sponsor to appeal a decision by an FDA division to a higher authority within the Agency, in this case the Office of New Drugs ((OND)). As part of FDA’s standard procedures for dispute resolution, Omeros and OND met last month to discuss the appeal. Per FDA guidelines for formal dispute resolution, a final decision from OND was to be rendered within 30 calendar days of the meeting unless the deciding official in OND required additional information. According to FDA’s interim response, the deciding official is collecting additional information, and a response to Omeros’ appeal will be provided within 30 days from the date that the additional information is collected and any required follow-up is conducted by the deciding official.

What could be worse? Now shareholders are in Never-Never Land. Narsoplimab's HSCT-TMA application is stalled until it can supply unspecified "additional information". Then we must all wait another 30 days plus however long it takes to work through "any required follow-up". There is no rushing the FDA through its drug approval process.

This delay is a real pity. No matter how many Omeros shares you have, patients who are waiting for narsoplimab to treat their HSCT-TMA are likely even more concerned. There are no other approved treatments for this condition.

The one tiny saving grace has been Omeros' compassionate use program. CEO Demopulos provided the following insights on this during Omeros' Q1 2022 earnings call :

We are confident in our data and in our submission. We believe that narsoplimab should have been approved last fall and we are committed to getting it approved as quickly as possible.

In the meantime, transplanters continue requesting narsoplimab under our compassionate use program for their patients with TA-TMA and we make every attempt to provide it, especially for children.

Two recent examples include two seven-year-old little girls, one in Italy and the other in Australia, one who had failed defibrotide and the other had failed both defibrotide and eculizumab. With narsoplimab treatment, both children have recovered and have been able to return home.

Unfortunately, such feel good accounts do not provide the type of tightly analytic data necessary to support applications for regulatory approval.

Protracted delays are sure to test Omeros' financial acumen

How long will it take before Omeros gets an approval for narsoplimab in treatment of HSCT-TMA? Optimists can envision that the FDA gets all the information it wants by mid-September, and does not want anymore. Then let's say it gives its approval in mid-October. Such is a best case scenario as I see it.

There are numerous chances for slippage. We do not know the complexity of the FDA's request for additional information. There is only one aspect to the situation which we dare assume; Omeros will surely bend all its efforts to supplying the information.

The graph above shows how shareholders reacted when narsoplimab was on track. Shareholders have been taking it on the chin in recent times as shown by the chart below:

Omeros today, on 08/18/2022 as I write, trades at ~$6.00. It is firmly wedged below $8.00 where it has traded with de minimus exceptions since the CRL.

Omeros' ongoing liquidity as it faces the next uncertain months will be a challenge. As of the close of Q2 2022, its cash and investments on hand available to support ongoing operations sits at $122.6 million.

The excerpt below from its Q2 2022 10-Q operations statement shows that its quarterly expenses exceed its income by $30.8 million.

This is distorted somewhat by its accounting treatment for its OMIDRIA revenues as explained by CEO Demopulos during its earnings call as follows:

The transaction with Rayner required us to reclassify all historical OMIDRIA revenue and expenses as a discontinued operations and to record the royalties earned as a reduction from the OMIDRIA contract royalty asset on our balance sheet. Our royalty rate for U.S. net sales of OMIDRIA is currently 50%, which equates to more than 70% of the operating profit.

On pg. 8 of its Q2 2022 10-Q, Omeros disclosed that its net cash used in the first 6 months of 2022 operating activities was $34.6 million. This suggests that Omeros has liquidity for the next ~7 quarters without borrowing.

Conclusion

With its current $6.01 share price and its $0.415 billion market cap (08/18/2022) fluctuating wildly day by day, it would be rash to evaluate Omeros as a blanket buy or sell. It is a perfect exemplar of a situational opportunity.

Over the near term, it is a prisoner to the news cycle. When and how the FDA elects to decide its BLA is unknowable. I am optimistic that all of the hubbub will work out in Omeros' favor. In 07/04/2022's Bouncing when Omeros was trading at ~$4.00, I noted:

...that Seeking Alpha's Quant Rating for Omeros is a discouraging "Strong Sell". Wall St. Analysts' Ratings are a mixed bag with price targets ranging from a low of $4.00 to a high of $20.00.

Today (08/18/2022), Omeros trades at ~$6.00; its Seeking Alpha Ratings Summary panel provides:

My read is that investors who are in the name after all its wild swings should hold tight. Those who want to increase a stake should watch the price swings and step in when they feel the time is right.

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