(Written by Stephen Brozak, a Starmine top-rated biotech analyst)
An Eye on an Exclusive Eye Drug
Omeros Corporation (OMER) on June 1st, 2014 announced FDA approval of Omidria, a unique
product that meets an important need for surgeons who perform cataract and intraocular lens
replacement (ILR) surgery. There is no other product like it on the market or allowed to be
compounded to prevent intraoperative pupil constriction (miosis) and reduce postoperative pain,
both of which are essential for the best surgical outcome. The market for this product is huge –
15 million surgical procedures per year worldwide and 4 million per year in the U.S. alone. The
European Medicines Agency (EMA) is currently reviewing the Marketing Authorization
Application for Omidria, and when approved, it will be marketable in all European Union (EU)
countries. At a rate similar to that of the U.S. that would yield more than nine million
procedures per year in the U.S. and EU alone.
OMER is in an excellent position to begin selling Omidria in late summer or early fall. A
contract sales team, beginning with 20 full-time, dedicated salespeople, is poised to detail the
drug at 80% of the U.S. surgical centers where the majority of ophthalmic surgery is performed.
The company has applied for CMS pass-through payment, which would be followed by
permanent separate billing. The product is easy to administer – just add a vial to the standard
irrigation solution used during surgery. Patent protection extends to 2023, and with extensions,
should last till 2033. Compounders cannot make this product or any like it because they cannot
compete with an FDA-approved product.
Sales launch delay with no explanation. Only reason for that is the explanation is negative. I suspect poor insurance coverage and inadequate sales force. Financially, this company will need to dilute in the near future. Omer is dead money until they dilute, insure and structure their business.
Consequently, OMER is in a highly favorable position
with a unique drug that meets a current need, has no FDA post marketing requirements and
has excellent patent protection. We are therefore reaffirming our Strong Buy recommendation
of OMER and doubling our 12-Month Target Price to $60.
We will depart from being financially demure and assign a value to OMER based solely on the
announcement of the only product of its kind, Omidria. With the problems it addresses, which
include reducing the potential for infection, loss of sight, debilitating eye pain, and poor surgical
outcomes in potentially a significant number of ophthalmology patients. Drawing on OMER’s
press release we cite the following. “The approval and near-term market launch of Omidria
could not come at a better time,” stated Eric B. Donnenfeld, M.D., clinical professor of
ophthalmology at New York University and immediate-past president of the American Society of
Cataract and Refractive Surgery. “With increasingly restrictive regulations around
compounding, surgeons are looking for a safe and effective FDA-approved product to improve
surgical outcomes by maintaining pupil dilation during lens replacement surgery and that
quickly resolves postoperatively, potentially allowing faster recovery of vision. In addition, the
anti-inflammatory ketorolac in Omidria could reduce the need for preoperative NSAIDs.” We
find these compelling reasons for surgeons to use the product and as we have repeatedly
proffered that, in our opinion, OMER is a greatly under-valued company at the present stock
price. We assess our doubling valuation by using just a 3.6 Million patient pool with an initial
market penetration of 13.66%, using a 7% growth rate and a 12% discount rate. Using a fully
diluted share count of 35 million, we arrive at our new 12-month price target of $60.