Omeros Corporation (OMER)

Omerose Corporation is engaged in discovering, developing and commercializing on pain management products derived from its proprietary PharmacoSurgerytm platform. Its PharmacoSurgery platform is based on low-dose combinations of therapeutic agents delivered directly to the surgical site throughout the duration of the procedure to preemptively inhibit inflammation and other problems caused by surgical trauma.

On October 13, 2009, Omeros initiated public offering of 6.82 million shares of its common stock at a price of $10.00 per share to fund the completion of its Phase 3 clinical trial of OMS 103HP, as well as potential commercialization of OMS103HP.

There were two Phase 3 clinical trials going on then. One is indicated to improve postoperative joint function and reduce pain following arthroscopic anterior cruciate ligament (ACL) reconstruction surgery, the other is indicated to reduce pain and improve postoperative joint function following arthroscopic meniscectomy surgery.

In the first quarter of 2011, Omerose announced that OMS 103HP failed to meet pre-specified efficacy endpoints in the ACL clinical trial. The stock price plunged from around $7 to $4 per share. The firm claimed to be unable to draw any conclusion about OMS 103HP, attributing confounding factors were involved.

Omerose switched its focus to the other PharmacoSurgery product OMS302, which was in Phase3 clinical trial, indicated to maintain intraoperative pupil dilation (mydriasis) and reduce postoperative pain in patients undergoing intra-ocular lens replacement surgery.

In addition to PharmacoSurgeytm platform, Omerose has been actively pursuing other programs like PPARr program, PDE7 program and PDE10 grogram…among which, G protein-coupled receptor (GPCR) program is the highlight. The firm collected $20 million from Vulcan Inc. and its affiliates and $5.0 million from Washington’s Life Sciences Discovery Fund Authority (LSDF). However, in its 2010 10K, revenue was recorded as $2.1 million in 2010 and $1.4 million in 2009. I am confused where the $25 million has gone?

In their recent 10Q, the detail was revealed. There was an exchange agreement between Omeroase and Vulcan/LSDF because Omerose will have to pay to Vulcan and LSDF a portion of net proceeds that it received from GPCR program and issued warrants to the two too. Omerose also stated that it purchased from Patobios Limited intellectual property assets related to GPCR program with approximately $10.8 million. I conclude that Omerose does not have enough know-how regarding to this technology, but trying to seek new growing sources as PharmacoSurgerytm is quite hopeless by now.

Revenue comes from grant funding from third parties.  So this firm does not have any company to license out or collaborate to develop their products, which indicate an obvious weakness. The historic revenue performance was displayed below (from Revere Research Platform). Even though it keeps growing, the increase is not significant to support lucrative investment value.

If we take a look at its balance sheet, shown below, we will find that Omerose has burned the assets from peak &62.1 million in 2009 to about half, $35 million now.

In summary, I am quite bearish on Omerose because it failed on its proprietary platform candidate of OMS103HP, because it lacked potential pipeline products and meaningful agreement with other biopharmaceutical companies, and furthermore, because the cash in hand is diminishing.

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