XLV - Omeros: Q1 Earning Overview Best Contrarian Biotech Play Of 2023

2023-05-16 18:55:18 ET

Summary

• HSCT-TMA BLA Resubmission: Omeros plans to resubmit a BLA for narsoplimab, potentially gaining approval by Q2 2024.
• IgAN Trial Progress: Top-line results for the phase 3 ARTEMIS trial on narsoplimab for IgAN are expected in Q3 2023.
• Solid Financials: Omeros' $371m cash reserves are expected to cover operations and debt obligations until 2025.
• Risk Factors: Omeros faces regulatory, clinical, financial, and competitive risks that could impact its future success. However, we believe the current valuation is attractive for its risk/reward.

Key update in Q1 2023 earnings call

Omeros Corporation ( OMER ) announced its Q1 2023 earnings on May 9th. As Omeros advances into 2Q23, we believe it is poised for positive and significant developments to its investment thesis around its lead candidate, narsoplimab.

So what has changed since our previous analysis?

We were initially bearish about the HSCT-TMA indication and only considered it as a free option due to previous failure and the FDA's rejection of its appeal to re-review the BLA after the CRL. However, during Q1 2023 earnings call, the company noted that they plan to resubmit a BLA application for narsoplimab targeting Hematopoietic Stem Cell Transplantation-associated Thrombotic Microangiopathy (HSCT-TMA). The management indicated that they hope to continue the dialogue with the FDA and discuss the proposed plan and analyses that would be needed for them to accept the BLA. If things work out and FDA accepts the BLA, we expect approval of the drug sometime in Q2 2024. To be fair, it is not a secret that the company consistently disappointed investors by delay in filing and the FDA's rejection of the HSCT-TMA indication; as such, we still do not ascribe too much to the approval, but clear guidance from the company during Q1 earnings should be a net positive for the stock moving forward during 2023.

IgAN trial is ongoing as planned, and data is expected in Q3 2023

The company noted that the phase 3 ARTEMIS trial evaluating narsoplimab in IgA nephropathy (IgAN) setting is expected to report top-line results by Q3 2023. Although we acknowledge that the management has a spotty track record in keeping its promises around the reporting timeline (i.e., HSCT-TMA and IgAN trial results getting delayed multiple times without clear updates), we believe the tone during the call sounded fairly confident. Also, considering the depressed valuation, even with the recent ~100%+ rise (since our initial initiation), the current enterprise value of ~$450m is still cheap for the company's potential first-in-class complement inhibitor for treating IgAN. Furthermore, we believe the recent FSGS readout of Travere Therapeutics that did not show eGFR benefit should add more enthusiasm to Omer's narsoplimab as it is increasingly becoming clear that only immune-modulating therapies can drive disease-modifying capabilities and Calliditas's Tarpeyo is so far the only candidate that showed sustained disease-modifying ability in IgAN (in phase 3). We believe narsoplimab's cleaner safety should be a game-changer, as Tarpeyo's chronic steroid-related adverse events are the key drawback that limits the drug's chronic usage.

Summary of IgAN drugs:

Drug

Company

Description

Status

Reduction in proteinuria

Tarpeyo

Calliditas

Oral formulation of budesonide

Approved (accelerated); eGFR data reported Mar 2023

34% (31% pbo-adjusted) in ph3 Nefigard

Filspari (sparsentan)

Travere

Oral endothelin type A & angiotensin II type 1 inhibitor

Approved (accelerated); eGFR data due Q4 2023

50% (35 points adjusted for irbesartan control) in ph3 Protect

Narsoplimab (OMS721)

Omeros

Anti-MASP2 antibody

Ph3 Artemis-IgAN ; proteinuria data due mid-2023

64% (no control arm) in ph2

Atrasentan

Chinook

Oral endothelin A receptor inhibitor

Ph3 Align ; proteinuria data due H2 2023

55% (no control arm) in ph2 Affinity

Iptacopan (LNP023)

Novartis

Oral complement factor B inhibitor

Ph3 Applause-IgAN ; proteinuria data due H2 2023

23% pbo-adjusted in ph2 *

Sibeprenlimab (VIS649)

Otsuka

Anti-April antibody

Ph3 Visionary ends Dec 2026

43% pbo-adjusted in ph2 **

*At highest dose (200mg BID); **pooled data with IV doses 2mg, 4mg & 8mg monthly. Source: Evaluate Pharma & Clinicaltrials.gov.

Source: Evaluate Pharma

Financials: strong cash runway until 2025

The company ended 1Q 2023 with strong cash reserves of $371m, which the management highlighted would be sufficient to retire the $95m in convertible debt (due in November 2023) and further support the company's ongoing operation up until 2025. We believe the risk of potential dilution through public offering is unlikely at the current valuation and also considering the robust cash runway.

Risks

1. Regulatory Risks : The future of OMER hinges on the FDA's approval of its drug candidates, including narsoplimab. Any adverse decision or prolonged deliberation by the FDA can potentially derail the progress of drug development, negatively impacting the company's financial performance and outlook.

2. Clinical Trial Risks : The results from the ongoing phase 3 ARTEMIS trial evaluating narsoplimab in IgAN and other trials, including those involving OMS906, remain uncertain. Past failures, such as the placebo-controlled phase 2 IgAN trial, underline the risk of unsuccessful outcomes that could adversely affect OMER's prospects.

3. Financial Risks : Despite its considerable cash reserves, OMER's burn rate, the retirement of $95MM in convertible debt due in November 2023, and the cost of ongoing and future research and development may strain the company's financial resources. Any unforeseen increase in expenses or lack of additional funding could affect OMER's financial stability.

4. Market Competition Risks : The biopharmaceutical sector is highly competitive, with numerous companies developing therapies for similar conditions. If competitors gain regulatory approval for their drugs before OMER or if their treatments prove to be more effective, it could significantly limit the market opportunity for OMER's candidates.

Conclusion

We maintain a non-consensus strong buy rating due to a) clear catalyst in IgAN and now potential optionality offered by Narsoplimab's HSCT-TMA opportunity, b) strong financial position (cash runway up until 2025), and c) modest valuation of $450m even with the recent rally. Additionally, the promising interim results from the phase 1b trial of OMS906 , a MASP-3 inhibitor, in treatment-naive PNH patients suggest the potential for further success and should add enthusiasm and diversification around the company's limited late-stage clinical development.

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