Omeros Corp. (OMER, Financial) has spent the majority of the last few months as the subject of intense debate in the biotechnology space. The company, which is working to develop a variety of drugs targeting rare diseases, fell foul of a report published in June by a research group that goes by the pseudonym Art Doyle. The report attacked Omeros' lead development program, which is investigating the safety and efficacy of a drug called OMS721 in a target indication of atypical hemolytic uremic syndrome (aHUS), highlighting several so-called deficiencies associated with the current publicly available information to the program.
A degree of back-and-forth later, including the initiation of some legal pleadings and the involvement of STAT reporter Adam Feuerstein, has not really done much to inject clarity into the situation.
In an attempt to remedy this, here is a look at what is going on.
It is worth noting the above mentioned Doyle is net short Omeros stock, so the individual (or group) has a vested interest in seeing the company's market capitalization deteriorate. This does not mean they are able to print falsehoods, of course, but it does add a degree of bias to the report, which needs to be taken into consideration.
First, let's address the drug and the disease. aHUS is an extremely rare, life-threatening, disease that, in most cases, is caused by chronic, uncontrolled activation of what's called the complement system, a branch of the body's immune system that destroys and removes foreign particles. The current standard-of-care drug in the space is called Soliris, which is manufactured and sold by Alexion Pharmaceuticals Inc. (ALXN, Financial). This drug generated more than $3 billion in sales, which is why all this is such a big deal. Essentially, with its OMS721 asset, Omeros is trying to wrestle a portion of these $3 billion in revenues from Alexion. In order to do so, the drug has to have some degree of competitive edge and it does – or so Omeros claims. According to the company, the drug can be administered subcutaneously, while Soliris requires intravenous administration.
It is this claim that is at the core of the ongoing argument.
We have not yet seen any pharmacokinetic data that proves a subcutaneous administration can induce efficacy (as defined by lectin pathway inhibition) outside of phase 1 data highlighted in an Omeros press release back in 2014.
Doyle and Feuerstein suggest the company's failure to make data publicly available to address this concern is worrying and necessitates shareholders make a leap of faith that could be remedied by releasing the data. This latter point is true, but Omeros is not obliged to report any of the data it collects before it wants to. That we have not seen any data could be viewed as frustrating, sure, but it far from implies the said data does not exist or that it does exist but is negative. Indeed, if the company was to sit on negative data while maintaining its assertion a subcutaneous administration can be effective in this population, it would open itself up to a large number of potential shareholder-related legal issues as and when the numbers do eventually hit press.
Another core element of the short argument is the phase 3 trial (the one that is going to underpin registration applications in the U.S. and Europe) will not be complete before 2020 and needs to enroll 80 patients – a large number in this extremely rare indication. Further, this will cost a lot of money. Cash is something Omeros does not have a lot of right now, leading to dilution risk and other issues.
Again, all of these points are true, but the implications are not quite as damning as the short report would have readers believe. The company has said it expects to put out interim data based on the first 40 of the 80 enrolled patients. There is a chance this interim data will be enough to support both accelerated approval in the U.S. and full approval in Europe. If this is the case, Omeros will only need half of the trial cash Doyle is claiming will have to be put up by shareholders over the coming 24 months.
Essentially, then, the situation is this: Omeros could release some data that proves the short sellers wrong, but it is under no obligation to do so and for (what it calls) competitive reasons, the company has decided to delay said data release until (presumably) phase 3 data hits press.
For shareholders, this adds a degree of risk to the equation that might otherwise be avoided with another allocation, but much of the concern raised by the previously mentioned short report and subsequently by Feuerstein at STAT seems unwarranted and looks to be far from prohibitive to an exposure as things stand.
Disclosure: The author has no positions in any of the stocks mentioned.
