Omeros (NASDAQ:OMER)

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Omeros falls into a group of biopharmas that I call the repurposers. The others are Zalicus, Rexahn, Ampio, and Cleveland Biolabs. Not an illustrious group. The basic principle is to take cheap generic drugs that no longer have patent protection, discover they have miraculous undiscovered therapeutic properties, and then try and build a new IP estate around their novel formulations and applications. Because these newfound effects of the repurposed drugs often seem farfetched, the companies give their drugs exciting new names and attempt to obfuscate their actual chemical composition to the maximum extent possible. However, a little Google goes a long way which allows a diligent researcher to determine that Rexahn's Zoraxel and Serdaxin are both the ancient antibiotic enhancer clavulanic acid, or that Ampio's miracle drug Zertane for premature ejaculation is actually the pain reliever tramadol.

Omeros is partial to combining old generic NSAIDs and alpha adrenergic agonists into irrigation fluids. They've had some success in clinical trials for eye surgery and mixed results in joint surgery. The problem with the eye surgery results is that their study drug was compared with placebo rather than the individual generic drugs that are often already used in those procedures. While OMS302 might garner FDA approval, the reaction of an ophthalmologist being asked to spend hundreds of dollars on OMS302 is likely to be a shrug and the comment "I already use those things" or "Thanks for the idea. I'll go out and buy some generic ketorolac and phenylephrine drops right now."

Meanwhile, the company missed their primary endpoint of improvement in the composite KOOS score in the phase III trial of PMS103HP in arthroscopic meniscectomy but met the secondary endpoint of pain relief. The solution? Change the primary endpoint to pain relief in the next phase III trials, to be performed later this year. The term "moving the goalposts" couldn't fit a situation any better.

Omeros is down to 22M in cash as of the end of 2012 but flaunts an ATM with MLV and a CEF with Azimuth. Carefully reading of these agreements indicates that the amount of funds available may not be quite as large as suggested in company PR.

So why green thumb Omeros here? I just escaped an 18 month red thumb with a positive score, thanks to the fall in share price from 11.5 to the current level below 4 in just a few months. There's no question that Omeros is a sick stock, much to the chagrin of countless falling knife catchers. Companies with strong long-term prospects rarely decline so precipitously without a major negative catalyst, but Omeros never should have risen so high. Part of the decline may simply be recoil from a manipulated ascent. Someone made a lot of money on this stock in 2012, to be sure. On the other hand, now that Omeros has returned to a reasonable valuation of 100M, there is substantial potential for renewed upward momentum on optimism for FDA approval of OMS302. Once the NDA is submitted and accepted, there's little to stand in the way of a modest run-up before the PDUFA. However, I wouldn't be shocked to see a large scale dilution once there has been a sizable appreciation in share price, even with the current financing agreements in place.

Q! 2013 NDA filing and mid 2013 filing in europe, looking very postive and phase 3 results exceeded expectations.

I believe OMER will outperform the S&P 500 by a considerable amount. I encourage Fools to go to its website and read about recent developments in its propieteray medical programs. That is a 15 minute task and well worth one's time. OMER has no income at this time, but expects approval of two drugs in 2013, one for arthroscopic knee surgery and a second for eye surgery. Daily trading volume has been small, however, and this should be considered by prospective investors.

G Protein Coupled Receptor cells in portfolio are potentially worth far more than current market value of the company. These are new intellectual properties that add to the value of the drugs in clinical trials. Can be volatile, but long term outlook is good.

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