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Omeros: Can growth story continue?

June 12, 2017

Shareholders of Omeros (NASDAQ:OMER) are sitting pretty with shares currently up almost 60% since the start of the year. The reason? Number one: Sales of Omeros’ first commercialized product are picking up steam. Number two: Omeros is channeling the sales of this product into funding the development of a new drug — with blockbuster potential.

However, after the massive move upwards this year, can shares continue to rocket higher? Or is Omeros making the mistake of counting two birds in the bush? It’s time for a deeper dive.

Omeros’ first product

Omeros’ first successfully commercialized product is Omidria, an injectable agent used to maintain pupil dilation as well as reduce pain following eye surgery. While sales of Omidria were shaky at launch, the combination of a volume discount plan as well as a physician education program have served to boost sales to an annual run-rate of just under $50 million. With an average list price of $465 per vial and an estimated 3.6 million cataract/intraocular lens surgeries performed in the U.S. annually, sales could have much more room to grow.

In the most recently reported quarter, total sell-through of Omidria vials increased 14% since just the prior quarter. Management expects that this uptrend in sales will continue, as the first quarter is generally the weakest quarter of the year for cataract surgeries.

The potential in the pipeline

While Omidria sales have been picking up, the real potential for this companies lies in Omeros’ pipeline — specifically a product known as OMS721. OMS721 is a human monoclonal antibody targeting a protein called “MASP-2.” While the science behind OMS712 is a bit heavy, suffice it to say that when MASP-2 “turns on”, it functions to increase the body’s immune response. By attacking MASP-2, OMS712, therefore, has the potential to reduce the body’s immune reaction.

This then begs the question of why would a biotech company ever want to decrease the body’s immune response? This would be highly useful in instances such as autoimmune diseases — diseases in which the immune system mistakenly identifies its own host as a foreign invader and attacks.

Autoimmune indications

One such disease is atypical hemolytic uremic syndrome (aHUS), a very rare disease characterized by an uncontrolled activation of the immune system — resulting in the formation of blood clots throughout the body.

Currently, the only approved treatment for aHUS is Soliris, a drug marketed by Alexion Pharmaceuticals. While aHUS affects only an estimated 300 patients in the U.S., it is also one of the most costly indications for treatment. In 2016, Soliris generated $2.8 billion in revenue facross all its approved indications, and it carries an annual price tag of $543,000.

In March of this year, Omeros announced favorable results from a phase 1 dose-ranging study of OMS721 in aHUS. In this seven-patient study, researchers found a significant, dose-dependent increase in the number of blood platelets for patients taking OMS721 (aHUS patients tend to have low blood platelet counts due to the immune system attacking the platelets). Omeros has moved OMS721 into a phase 3 study with the intent to recruit 40 patients.

Can shares continue higher?

While sales of Omidria were only $12.3 million in the most recent quarter, interest in the medication is picking up. With a peak sales estimate for Omidria of around $500 million by 2019, Omeros (currently hovering at a market cap just under $700 million) could be trading at a discount to the potential of Omidria alone.

However, should OMS721 succeed as a treatment for aHUS or a host of other autoimmune diseases, the company would be sitting on a potential billion-dollar blockbuster — and shares could skyrocket from today’s levels. For the risk-tolerant investor, as we get closer to the phase 3 data readout for aHUS, I believe Omeros could have more room to run.

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