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Maxim Group initiates coverage of Omeros Corporation with a Buy

Maxim Group initiates coverage of Omeros Corporation with a Buy
Rating and a 12-month price target of $23.

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  • EQUITY RESEARCH INITIATIONBiotechnology Initiation BuyMay 7, 2012 Omeros (OMER – NASDAQ – $9.02)Closing Price (05/07/12): $9.02 Do the Math – It’s a Buy!12-Month Target Price: $23 We are initiating coverage of Omeros Corporation with a Buy52-Week Range: $3.00-$11.00 Rating and a 12-month price target of $23. Omeros is a uniqueMarket Cap (MM): $202 blend of specialty pharma and true drug discovery with multiple catalysts that should play out favorably, in our opinion.Shares O/S (MM): 22.4Float (MM): 13.9 Ophthalmological surgery, OMS302, is the major driver. OMS302Avg. Vol. (000) 107 is made up of two components – phenylephrine and ketorolac – addedDebt (M) $20 to the standard irrigation solution used during intraocular lens replacement procedures to maintain intraoperative mydriasis (pupilDividend/Yield: $0.00/0.00% dilation) and reduce postoperative pain. A phase III trial met itsRisk Profile: High primary endpoint (P<.00001). A second Phase III trial is enrolling with data expected in 2H12 and a potential launch in early 2014.FYE: December GAAP EPS P/E Conservatively speaking, global sales could reach north of $300 million 2011A ($1.28) n.a. by 2017. 2012E ($1.31) n.a. Arthroscopy represents upside. Omeros’ stock fell sharply when a 2013E ($1.26) n.a. Phase III trial of OMS103HP (a combination of Ketoprofen, Amitrptyline, and Oxymetazoline) failed to hit its endpoint in a trial evaluating its efficacy in Anterior Crucial Ligament (ACL) repair last Omeros Corporation (OMER) year. We believe the failure may have more to do with “non-random randomization” (for which it was impossible to control) rather than a lack of efficacy. A Phase III trial in Meniscectomy is now underway with a second planned to follow. The Phase II meniscectomy trial did hit p-values, and we are hopeful that this trial will replicate those results. However, we have not factored success into our EPS or FCF models, so good data could provide upside to our forecast. Omeros phase 2 clinical trial results for OMS103HP in the knee meniscectomy surgery trial were excellent. Initially, the trial was stopped early (at n=143 patients), still achieving statistical significance across all three domains assessed (function, pain, and range of motion). The functional measurement criteria – the endpoint in theSource: Bigcharts.com (as of of May 7, 2012) meniscectomy trial (KOOS, a validated, patient-reported outcomes measure) – was entirely different than the functional endpoint in theJason Kolbert (212) 895-3516 ACL trial (a set of functional tests commonly used following ACL reconstruction). As such, comparing these trials does not make sense.jkolbert@maximgrp.com GPCR program: misunderstood and poorly valued by the street. Omeros has thus far successfully unlocked 37 Orphan GPCRs; 30%– 40% of drugs today target only 46 GPCRs. Our valuation metrics for Omeros are based on several models including FCFF, DCF EPS, and Sum of the Parts models. These metrics all suggest a substantially higher target (in the low $20s). We select a 20% discount rate for our EPS and FCFF models given the high p-values that were demonstrated in the ophthalmology trial. One critical note, however, is the inability of these metrics to forecast the outcome of a clinical trial event. These metrics assume a positive outcome for the second OMS302 ophthalmological surgery trial. Maxim Group LLC 405 Lexington Avenue New York, NY 10174 – www.maximgrp.com SEE PAGES 47 – 49 FOR IMPORTANT DISCLOSURES AND DISCLAIMERS
  • Omeros Corporation (OMER) CORPORATE PROFILEOmeros Corporation (OMER)1420 Fifth Avenue, Suite 2600Seattle, WA 98101 Fundamental Risks:Web Site: www.omeros.com • Outcome of the secondSenior Management: Ophthalmology clinical trial could fail as could the Menisectomy trial.Greg Demopulos, MD, Founder and CEO. Dr. • Company may raise capital.Demopulos leads the team, many of whom are the same • Early stage pipelinefolks that brought Cialis to the marketplace. Dr.Demopulos started his career as a practicing surgeon at (PLEASE SEE PAGES 40-42 FOR A MOREStanford University. At that time, he had a vision of the DETAILED OUTLINE OF OURpractical application of therapeutics for better outcomes “INVESTMENT RISKS”)as part of the surgical paradigm. This vision has nowbeen extended to multiple areas from ophthalmology toarthroscopy, as well as a pipeline of robust therapeuticsthat address large markets. Institutional Ownership: 10.0%Company description. Omeros Corporation (OMER) Insider Ownership: 12.0%has active programs in ophthalmologic, arthroscopic Shares Short: 0.4Mknee, and other related surgical procedures. The platformis based on the application of low-dose combinations of Balance Sheet Summary: $MMexisting therapeutic agents, delivered directly to the (As of Dec 31, 2011)surgical site throughout the duration of the procedure to Cash & Restricted Cash: $24preemptively inhibit inflammation and other problems Long-Term Debt: $20caused by surgical trauma. Beyond the PharmacoSurgery Quarterly Burn Rate $8platform, the company has very active R&D effortsfocused on several blockbuster areas in CNS, such asschizophrenia, Parkinson’s disease, and addiction. The Analysts Following the Co.: 6company also has an active program in inflammation (its (Excluding Maxim Group)plasmin program) with the potential to fill a hole createdwhen Trasylol was pulled from the U.S. markets. Inaddition, OMER has a MASP-2 program with thepotential to address the same markets in which Alexion’s(ALXN-$86.39-NR) Solaris is sold. These effortscompliment the company’s research in its G-proteincoupled receptors (GPCR) program.Maxim Group LLC 2
  • Omeros Corporation (OMER) INVESTMENT SUMMARY AND CONCLUSION We are initiating coverage of Omeros Corporation Valuing Omeros (OMER) with a Buy recommendation and a 12-month on the Ophthalmological target price of $23. Omeros is an unusual combination of surgery program specialty pharmaceuticals and biotechnology drug alone, we see discovery. On the specialty pharma side, we see great value upside. in the ophthalmological surgery program. While we believe in the arthroscopic surgery platform, we are staying on the conservative side and not including positive results in our FCF or EPS models. RECENT PERFORMANCE/FINANCIAL HIGHLIGHTSFinancials. Omeros has financed operations primarily through private and public placements ofequity securities for proceeds totaling $139.2 million, as well as through two debt facilities withloan proceeds totaling $37.0 million ($9.0 million of which was used to pay off the remainingbalance of the first facility). The GPCR program was partially monetized through a fundingagreement with Vulcan pursuant for which the company received $20.0 million in capital, as wellas an additional $5 million of funding from Washington State’s Life Sciences Discovery Fund.As of December 31, 2011, Omeros had $24.6 million in cash, cash equivalents, and short-terminvestments. Additionally, the company stands to receive a $3.0 million cash lease incentivepayment in the first quarter of 2012 related to new office space and a laboratory lease.We expect that the company will need to raise capital again this year, presenting a potential near-term overhang on the stock. We are modeling OMS302 to generate revenues in 2014. Severalother variables can impact the company’s need to raise capital, including the company’s ability toout-license or partner one of the early-stage preclinical programs.August 2010: Omeros secured a CEFF. The company secured a committed equity financingfacility (CEFF) under which it may sell up to $40 million of its shares of common stock toAzimuth Opportunity, Ltd. (the "investor") over a 24-month period. Omeros is not obligated touse the facility and remains free to enter into and consummate other equity, debt, and non-dilutivefinancing transactions. Omeros paid Azimuth a $100,000 fee to secure the facility. ReedlandCapital Partners will act as placement agent and receive a fee for its services equal to 0.5% of theaggregate dollar amount of common stock purchased by Azimuth upon settlement of each drawunder the facility. The actual amount of funds that can be raised under this facility will depend onthe number of shares sold under the agreement and the market value of Omeros stock during thepricing period of each sale.Bull case. Omeros is highly undervalued as the market is failing to appreciate the potential valueof just OMS302 alone in Ophthalmological (lens replacement surgery) indications alone. P-valuesof 0.0001, (Omeros reported p-values for both mydriasis and pain as <0.00001 but also pointedout that p-values were even better that’s four zero’s which tell us this is not chance!). Withgreater than 3.6 million cataract/lens replacement procedures in the U.S. alone (similar numbersin Europe and twice that in the rest of the world, the potential here is great). Add in premium lensreplacement procedures ((0.6 million U.S. >0.2 Million EU, 0.4 Million rest of world (ROW))and we see an even larger market opportunity with no competition. OMS302 promises to changethe treatment paradigm. Now factor in the value for the Arthroscopy franchise (which evenMaxim Group LLC 3
  • Omeros Corporation (OMER)greater potential), the pipeline such as PDE7: (Addiction & Compulsive behaviors), PDE10(Huntington’s Disease, Schizophrenia, Cognitive disorders, Parkinson’s) & Plasmin (safereplacement for Trasylol a $500 million product a decade ago), MASP-2 Program (a moreeffective version of Solaris Alexion – not rated) as well as the value of license deals associatedwith the GPCR platform. All of these programs have data readouts and associated catalysts. Bullswill see the potential for Omeros technology to be transformative powered by specialty pharmadivision that can generate revenues and pay the bills.Bear case. Omeros got into trouble right from its IPO where the stock was over-priced and fellsharply; now two years later it’s still below its IPO price. Bears see the PharmacoSurgeryplatform as fatally flawed and will be quick to point to the missed primary endpoint in the ACLtrial last year, proving that phase II data does not portend the phase III outcome, as such the phaseIII ophthalmological surgery trial is an unpredictable binary event that could miss sendingOmeros stock to low single digits. Some bears will still point to a flawed factorial analysis thatpresents regulatory risk (this specifically refers to the FDA’s concerns regarding a mixture ofproducts re-tasked for a new indication. How does the mixture compare to the individualcomponents in humans (i.e. rat data will not suffice for approval), however, the bears forget thatOmeros did complete a full-factorial P2 human clinical trial for OMS302. As for the earlier stagepipeline the bears see management as misreading the value of the pre-clinical, phase 1 products inlarge potential indications that require more resources than Omeros can muster. Many have triedand failed indications like Huntington’s Disease, Schizophrenia, Cognitive disorders,Parkinson’s. Cubist experienced a spectacular failure with Dyax’s (DYAX-$1.49-NR) Kalbitorfor CABG (as a replacement for Trasylol). The MASP-2 Program makes sense on a diagram butthat’s a long way off from having a drug. The GPCR platform sounds great but where are the biglicense deals. Omeros is burning through its cash, has debt and need to raise capital before anyproducts can reach the marketplace. The CEFF also remains an over-hang in front of investors.Our take. We view Omeros’ PharmacoSurgery platform as new and novel. For OMS302, we seethe outcome of the second Phase III trial as presenting relatively low clinical risk and a highpotential for rapid adoption once approved. The market may be under-appreciating the size andscope of both the cataract surgery and refractive lens exchange (RLE) opportunities, in ouropinion. We also believe in the arthroscopy product – the OMS103HP – and are very hopeful thatthe meniscectomy pivotal data will be good. With that said, we do not include any market sharein our model, making a point that Omeros can stand alone without it. We see the opportunity forsignificant news flow in the year ahead. The company’s multiple drivers include OMS302(ophthalmological surgery), OMS103HP (arthroscopy), and a lot of phase 1 data from the PDE7,PDE10, Plasmin, and MASP programs, as well as from the G-PCR technology platform. Weacknowledge that financing risk and the CEFF may limit near-term performance, but we believeonce out of the way (likely during the next six months), the stock will rebound and surpasscurrent levels based on data from catalyst events. As such, we advise aggressive investors toaccumulate positions now in anticipation of the year ahead.Maxim Group LLC 4
  • Omeros Corporation (OMER) COMPANY OVERVIEWOmeros was founded by Greg Demopulos, MD. As a practicing surgeon at Stanford University,Dr. Demopulos envisioned the practical application of therapeutics for better outcomes as part ofthe arthroscopic surgical paradigm. That vision has now been extended to multiple areas: Thecompany has active programs in ophthalmologic and arthroscopic knee surgery, and theurological program has completed its phase II and is being evaluated. The platform is based onthe application of low-dose combinations of existing therapeutic agents delivered directly to thesurgical site throughout the duration of the procedure to preemptively inhibit inflammation andother problems caused by surgical trauma. Beyond the PharmacoSurgery platform, the companyhas very active R&D efforts in place, focused on several blockbuster areas in CNS such asschizophrenia, Parkinson’s disease, and addiction. The company also has an active program ininflammation. These efforts further compliment the company’s research in its G-protein coupledreceptors (GPCR) program. We expect to see positive news flow from these programs and theGPCR platform in the years ahead, providing a longer-term value proposition beyond thePharmacoSurgery platform.Exhibit 1: Upcoming catalysts for OMERProduct Indication Event Tim eline Im pactArthroscopyOMS103HP Menisectomy Indication PIII Menisectomy Indication US Trial- data 2H-2012 +++OMS103HP Menisectomy Indication PIII Menisectomy Indication EU Trial Begins 1H-2013 +OMS103HP Menisectomy Indication PIII EU Trial completes enrollment 1H-2014 +OMS103HP Menisectomy Indication PIII EU Trial Reports Data 2H-2014 +++OMS103HP Menisectomy Indication File for Approval 1H-2015 +OMS103HP Menisectomy Indication Commercial launch 1H-2016 ++OMS103HP Menisectomy Indication EU & ROW Filing 1H-2017 ++OMS103HP Menisectomy Indication EU & ROW Commercialization 2H-2018 ++Ophthalm ologyOMS-302 Ocular Lense Surgery Phenylephrine Phase II dose-ranging trial results 1Q-2010 COMPLETEDOMS-302 Ocular Lense Surgery PII Program Start 2H-2010 COMPLETEDOMS-302 Ocular Lense Surgery Phase III Trial (n=405) 3.2012 COMPLETEDOMS-302 Ocular Lense Surgery Data from 2nd PIII Trial (n=400) 2H-2012 +++OMS-302 Ocular Lense Surgery File for Approval 1H-2013 +OMS-302 Ocular Lense Surgery Commercial launch 1H-2014 ++UrologyOMS-201 Urological Surgery Complete Phase I/II 2H-2010 COMPLETEDOMS-201 Urological Surgery Sttart Phase II/III Study 1H-2011 COMPLETEDOMS-201 Urological Surgery Continue to Next Step of Clinical Development ? tbdPipelinePPAR (OMS 403) Opoid Addiction, Alcohol, Nicotine P2 Study 2012 +MASP-2 (OMS721) Atypical Hemolytic Uremic Sundrome (aHUS) P1 Safety Study Data 1Q-2013 +MASP-2 (OMS 616) Cardiovascular Surgery Prevention of Blood Loss (CABG) - P1 Safety Study Data 1H-2013 +PDE10 (OMS 284) Schizophrenia P1 Safety Study Data 4Q-2012 +PDE7 (OMS 527) Cocaine Addiction P1 Safety Study Data 1H-2013 +GPCR Platform Identify Receptors linked to CNS Discovery & Research ongoing +Stock Significance Scale: + of moderate importance; ++ higher level; +++ highlySource:Maxim Forecasts and Company reports.Maxim Group LLC 5
  • Omeros Corporation (OMER)Omeros has an exciting pipeline: 1.) OMS824 (PDE10): schizophrenia and/or cognitive andmultiple other disorders; phase 1 data expected in 2012. 2.) OMS527 (PDE10): cocaine addiction;phase 1 studies are expected to begin later this year. 3.) OMS616 (Plasmin): prevention of bloodloss related to cardiac surgery; phase 1 trials are expected to begin in 1H13 (efficacy equal toTrasylol by human ex vivo data; no meaningful off-target activity at Kallikrein or factor Xia). 4.)OMS721 (MASP-2 antibody): atypical hemolytic uremic syndrome (aHUS), PNH, AMD andmore; trials expected to begin in by 1Q13 (promising clinical candidate as the MASP-2 antibodyspecifically blocks the Lectin pathway; note that MASP-2 inhibition prevents microvascularthrombosis).Exhibit 2: Omeros’ development pipeline (abbreviated) Development Stage Product Preclinical Phase I Phase II Phase III MarketOMS-103 HP 505(B)(2):Arthroscopy: Ketoprofen/Amitriptyline/OxymetazolineInflammation/Pain - Arthroscopic ACL Surgery * (program on hold)Inflammation/Pain - Arthroscopic Meniscectomy Complete 1st PIII (2013)OMS-302 505(B)(2) Opthalmic: Ketorolac/Phenylephrine Complete 2nd PIII (2013/4)OMS-201 505(B)(2) Urological: Ketoprofen/Nifedipine Start P2 (?)MASP-2 Program - IND & Move to clinic Inflammation:Plasmin (coagulopathies) Surgery - Blood LossPDE7 Program Parkinsons Disease & AddictionPPAR -γ AddictionPDE10 Program SchizophreniaGPCR Program - de-orphanization CNS DisordresSource: Omeros* Will not be pursuedSource: Maxim and OmerosOmeros’ intellectual property. The PharmacoSurgery platform uses therapeutics that are wellknown and, today, generically available. As a result, Omeros does not hold any NCE (newchemical entity) patents. Recognizing this, the company created an extensive patent estatefocused on both composition and method of use patents, covering the combinations of productsrepresented in its PharmacoSurgery platform. Patent protection for OMS103HP should extendthrough 2019, providing seven years of exclusivity. In addition, we expect OMS302 to beextended out to 2023 (and, pending applications, potentially 2033) and OMS201 to 2026.As of February 15, 2012, Omeros owned or held worldwide exclusive licenses to a total of 35issued or allowed patents and 41 pending patent applications in the United States, as well as 134issued or allowed patents and 144 pending patent applications in foreign markets. These patentsare related to therapeutic compositions and methods related to the company’s PharmacoSurgeryplatform, GPCR program, and preclinical development programs.The patent portfolio for the PharmacoSurgery technology is directed to locally deliveredcompositions and treatment methods using agents selected from broad therapeutic classes. Thesepatents cover combinations of agents, generic and/or proprietary to the company or others,delivered locally and intra-operatively to the site of any medical or surgical procedure. As ofFebruary 15, 2012, the patent portfolio included 15 U.S. and 35 foreign issued or allowed patents,as well as 7 U.S. and 20 foreign pending patent applications, related to the PharmacoSurgeryproduct candidates and development programs. The issued PharmacoSurgery patents have termsthat will expire as late as September 24, 2022 for OMS103HP and, assuming issuance ofcurrently pending patent applications, August 4, 2032, for OMS103HP, July 30, 2023 forOMS302 and March 17, 2026 for OMS201. The company plans to intend to file additional patentapplications directed to OMS302 which, if issued, are expected to provide patent terms ending2033 or later.Maxim Group LLC 6
  • Omeros Corporation (OMER)The initial issued patents in the PharmacoSurgery portfolio are directed to combinations ofagents, drawn from therapeutic classes such as pain and inflammation inhibitory agents, spasminhibitory agents, restenosis inhibitory agents, and tumor cell adhesion inhibitory agents. Omerosexpanded their initial patent position with a series of patent applications directed to what thecompany believes are the key physiological and technical elements of selected surgicalprocedures and to the therapeutic classes that provide opportunities to improve clinical benefitduring and after these procedures. Accordingly, the pending PharmacoSurgery patent applicationsare directed to combinations of agents, drawn from therapeutic classes such as pain andinflammation inhibitory agents, spasm inhibitory agents, vasoconstrictive agents, mydriaticagents, and agents that reduce intraocular pressure. These are preferred for use in ophthalmologicprocedures including intraocular procedures, arthroscopic procedures, and urologic proceduresincluding ureteroscopy (for OMS302, OMS103HP and OMS201, respectively), as well ascovering the specific combinations of agents included in each of these product candidates.OMS302: Ophthalmology. OMS302 is encompassed by the PharmacoSurgery patent portfolio.The relevant patents and patent applications in this portfolio cover combinations of agents,generic and/or proprietary to the company or others, drawn from therapeutic classes such as painand inflammation inhibitory agents, mydriatic agents, and agents that reduce intraocular pressure,delivered locally and intra-operatively to the site of ophthalmological procedures, includingcataract and lens replacement surgery. As of February 15, 2012, Omeros owned one pending U.S.Patent Application, as well as 11 issued patents and nine pending patent applications in foreignmarkets (Australia, Canada, China, Europe, Hong Kong, and Japan) that cover OMS302.OMS103HP: Arthroscopy. OMS103HP is encompassed by the PharmacoSurgery patentportfolio. The relevant patents and patent applications in this portfolio cover combinations ofagents, generic and/or proprietary to the company or others, drawn from therapeutic classes suchas pain and inflammation inhibitory agents and vasoconstrictive agents, delivered locally andintra-operatively to the site of medical or surgical procedures, including arthroscopy. As ofFebruary 15, 2012, Omeros owned five issued U.S. Patents, three pending U.S. PatentApplications, and 32 issued patents and three pending patent applications in foreign markets(Australia, Brazil, Canada, China, Europe, Hong Kong, Japan, Mexico, Norway, Russia,Singapore, and South Korea) that cover OMS103HP.OMS201: Urology. OMS201 is encompassed by the PharmacoSurgery patent portfolio. Therelevant patents and patent applications in this portfolio cover combinations of agents, genericand/or proprietary to the company or others, drawn from therapeutic classes such as pain andinflammation inhibitory agents and spasm inhibitory agents, delivered locally and intra-operatively to the site of medical or surgical procedures, including uroendoscopy. As of February15, 2012, Omeros owned three issued U.S. Patents, two pending U.S. Patent Applications, and anadditional 22 issued patents and 12 pending patent applications in foreign markets (Australia,Brazil, Canada, China, Europe, Hong Kong, India, Japan, Mexico, Norway, Russia, Singapore,and South Korea) that cover OMS201.PPAR γ program: OMS403. As of February 15, 2012, Omeros owned two pending U.S. PatentApplications and 22 pending patent applications in foreign markets (Australia, Brazil, Canada,China, Europe, India, Japan, Mexico, New Zealand, Russia, South Korea, and International PatentCooperation Treaty) directed to the recently discovered link between PPARg and addictivedisorders.Maxim Group LLC 7
  • Omeros Corporation (OMER)PDE10 program: OMS824. As of February 15, 2012, Omeros owned one issued patent and fourpending patent applications in the United States, and nine pending patent applications in foreignmarkets (Australia, Canada, China, Europe, India, Japan, and New Zealand) that claimproprietary PDE10 inhibitors.PDE7 program: OMS527. As of February 15, 2012, Omeros owned two pending U.S. PatentApplications, as well as one issued patent and 21 pending patent applications in foreign markets(Australia, Brazil, Canada, China, Europe, India, Japan, Mexico, New Zealand, and Russia)directed to the link between PDE7 and movement disorders, as well as two pending U.S. PatentApplications and one international Patent Cooperation Treaty Patent Application directed to thelink between PDE7 and addiction and compulsive disorders. Additionally, under a license fromDaiichi Sankyo, the company exclusively controls rights to two issued U.S. Patents and onepending U.S. Patent Application, as well as 13 issued and 11 pending patent applications inforeign markets (Australia, Brazil, Canada, China, Europe, Hong Kong, Hungary, India, Japan,Korea, Mexico, New Zealand, and Russia) that claim proprietary PDE7 inhibitors.MASP-2 program: OMS721. Omeros holds worldwide exclusive licenses to rights inconnection with MASP-2, the antibodies targeting MASP-2, and the therapeutic applications forthose antibodies from the University of Leicester, Medical Research Council at OxfordUniversity, and Helion Biotech ApS. As of February 15, 2012, the company exclusivelycontrolled four issued patents and nine pending patent applications in the United States, as well asnine issued patents and 40 pending patent applications in foreign markets (Australia, Brazil,Canada, China, Hong Kong, Europe, India, Indonesia, Japan, Mexico, New Zealand, Russia, andSouth Korea) related to the MASP-2 program.Plasmin program: OMS616. Omeros holds worldwide exclusive licenses to a series ofantifibrinolytic agents from The Regents of the University of California. As of February 15, 2012,the company exclusively controlled one issued patent and one pending patent application in theUnited States and four pending patent applications in foreign markets (Australia, Canada, Europe,and Japan) that are directed to these proprietary agents.GPCR program. As of February 15, 2012, Omeros owned three issued patents and four pendingpatent applications in the United States, as well as 42 issued patents and seven pending patentapplications in foreign markets (Australia, Canada, China, Europe, Hong Kong, India, Japan,Macao, Mexico, New Zealand, and Russia), which are directed to previously unknown linksbetween specific molecular targets in the brain and a series of CNS disorders.Maxim Group LLC 8
  • Omeros Corporation (OMER) PRODUCT DESCRIPTIONSOMS302: Ophthalmology. OMS302 is the company’s lead PharmacoSurgery platform product.It is being developed for use during ophthalmologic procedures, including cataract and other lensreplacement surgery. It is a proprietary combination of an anti-inflammatory agent and amydriatic agent (which causes pupil dilation). Each component has well-known safety andpharmacologic profiles. Like OMS103HP, the individual FDA-approved drugs containing each ofthese active agents have been used in ophthalmologic clinical practice for more than 15 years, andboth agents are contained in generic, FDA-approved drugs.Exhibit 3: Graphic representation of OMS302 being used during the cataract/refractiveLens exchange (RLE) procedure. OMS302 represents a proprietary combination of a mydriaticagent with an anti-inflammatory. Like OMS103HP, it will require no change to the surgicalprocedure, and it will be pre-packaged in a single vial use, pre-dosed and pre-formulated. Thereare estimated to be 3.6M US and 20M worldwide lens replacement procedures (in 2012),growing at approximately 3-4% annually.Source: OmerosWhy is mydriasis important? "Maintenance of mydriasis throughout the procedure is essentialfor the safety of lens replacement surgery," states Mark I. Rosenblatt, MD, PhD, associateprofessor of ophthalmology at Weill Cornell Medical College. "A constricted pupil decreases thesurgeons operative field, which can make the procedure more difficult to perform and potentiallyincreases the rates of complications, including rents in the lens capsule or the retention of corticallens material with more frequent posterior capsular opacification or lens dislocation. And, as aside note, the addition of pain relief from this drug combination improves the surgical experiencefor the patient and assists the surgeon in pain management during the critical early postoperativeperiod."Clinical data for OMS302: Ophthalmology. OMS302 is Omeros’ second most advancedproduct candidate. Like OMS103HP, 302 is a proprietary combination of an anti-inflammatoryand a Mydriatic (pupil dilation) agent in a standard irrigation solution for use during ophthalmiclens replacement surgery (cataract and refractive lens).Phase II study results. The company recently completed a phase 2b clinical study of OMS302(N=221-patients). Patients who were treated with OMS302 demonstrated statistically significant(p<0.0001) and clinically meaningful maintenance of mydriasis throughout the cataractprocedure. If mydriasis is not maintained throughout the procedure, the risk of injuring structureswithin the eye increases and the required operating time is often prolonged. Of equal clinicalrelevance, OMS302 also significantly decreased (p=0.0418) pain in the early postoperative periodand reduced the frequency of complaints of moderate and severe pain (2.5 times more complaintsin the vehicle-treated patients). The drug product was safe and well tolerated in this study.Maxim Group LLC 9
  • Omeros Corporation (OMER)Phase III study: P-values significant (p<0.00001). In March, Phase III data was reported fromthe pivotal trial evaluating OMS302 in patients undergoing intraocular lens replacement surgery.OMS302 met its primary endpoint by demonstrating statistically significant (p<0.00001)maintenance of intraoperative mydriasis (pupil dilation). OMS302 also demonstrated statisticalsuperiority (p<0.00001) over the placebo in reduction of pain in the early postoperative period.The data for both endpoints are clinically meaningful.The trial was a multi-center, double-blind evaluation of 405 patients randomized 1:1 to receiveeither OMS302 or the placebo. The primary endpoint was the maintenance of intraoperativemydriasis (pupil dilation), which is critical to the safety and surgical ease of lens replacementsurgery. Pupil constriction during surgery increases the risk of injury to intraocular structures andcan substantially prolong surgical time. In addition to statistical superiority over the placebo inmaintenance of mydriasis and the secondary endpoint of reduced postoperative pain, OMS302achieved p values of less than 0.05 in a series of other clinically relevant measures.The most common adverse events were those related to surgery, specifically eye pain, eyeinflammation, headache and increased intraocular pressure. The incidence of these adverse eventswas similar between OMS302 and placebo-treated patients.Exhibit 4: OMS302 Phase 3 ILR Surgery: Clinical Need for Consistent Dilation(Intraoperative Pupillary Miosis (Constriction)Source: OmerosMaxim Group LLC 10
  • Omeros Corporation (OMER)Exhibit 5: OMS302 Phase 3 ILR Surgery Intraoperative Change in Pupil Diameter (PupilSize Relative to Start Time of Irrigation)Source: OmerosPhase III results (summarized): The study showed a clinically meaningful improvement in themaintenance of mydriasis and the prevention of miosis as well as benefits in less postoperativepain. In fact, 590% more placebo patients compared to OMS302 patients experienced a pupil sizeof < 6 mm at cortical clean-up and 70% more OMS302 patients (compared to placebo patients_also reported no pain in the early postoperative period.Potential advantages of OMS302: Maintain pupil dilation; ease surgical procedure; decreaserisk of surgical trauma; manage floppy iris syndrome; reduce postoperative inflammation andpain; and improve postoperative visual acuity.Next clinical steps for OMS302. The Second Phase 3 trial has already begun enrolling with dataexpected 2H12. NDA and MAA in preparation, and submissions are expected during the first partof 2013. Launch is expected during the first part of 2014.Exhibit 6: OMS302 Phase 3 ILR Surgery: Mydriasis (pupil dialation) vs. Miosis (pupilconstriction) Cortical Clean-Up Lens Implantation EndSource: OmerosMaxim Group LLC 11
  • Omeros Corporation (OMER)Exhibit 7: OMS302 Annual Revenue Model: (Please see our model assumptions later in this report). U.S. OMS-302 (Cataract): 2012 2013 2014 2015 2016 2017 3.6 MLN "Cataracts" at baseline (-0.6 PL) : annual procedures (2012) 3,032,180 3,121,518 3,217,265 3,320,004 3,430,381 3,549,119 Market Size Growth (Annual) 2.9% 3.1% 3.2% 3.3% 3.5% Market Share Penetration (302) 0.0% 0.0% 4.3% 9.5% 13.5% 17.5% Number of Procedures 0 0 137,445 315,733 463,459 621,481 1.0 1.0 1.0 1.0 1.0 1.0 1.0 Price per procedure $ 250 250 $ 250 250.0 $ 250 $ 250 Price Growth 0% 0% 0% 0% 0% U.S. Annual Sales $ - $ - $ 34 $ 79 $ 116 $ 155 % Growth (qtrly) 130% 47% 34% U.S. OMS-302 (Premium Lens): 2012 2013 2014 2015 2016 2017 600k "premium lens replacement at baseline: (2012) 621,919 686,816 764,636 858,735 973,548 1,115,003 Market Size Growth (Annual) 10.4% 11.3% 12.3% 13.4% 14.5% Market Share Penetration (302) 0.0% 0.0% 4.6% 13.1% 23.1% 31.1% Number of Procedures 0 0 35,099 112,283 224,709 346,632 Units Per Procedure 1.0 1.0 1.0 1.0 1.0 1.0 Price per procedure $ 250 250 $ 250 250.0 $ 250 $ 250 Price Growth 0% 0% 0% U.S. Annual Sales $ - $ - $ 9 $ 28 $ 56 $ 87 % Growth (qtrly) 220% 100% 54% Western Europe (Cataract) 2012 2013 2014 2015 2016 2017 3.3 MLN "Cataracts at baseline: annual procedures (2012) 3,022,955 3,086,374 3,153,773 3,225,465 3,301,790 3,383,123 Market Size Growth (Annual) 2.1% 2.2% 2.3% 2.4% 2.5% Market Share Penetration (302) 0.0% 0.0% 0.0% 2.5% 6.5% 10.5% Number of Procedures 0 0 0 80,868 214,862 355,490 Units Per Procedure 1.0 1.0 1.0 1.0 1.0 1.0 Price per procedure $ 200 200 $ 200 200.0 $ 200 $ 200 Price Growth 0% 0% 0% Western Europe QTRLY Sales ($) $ - $ - $ - $ 16 $ 43 $ 71 EU OMS-302 (Premium Lens): 2012 2013 2014 2015 2016 #REF! 300k "premium lens replacement at baseline: (2012) 314,009 355,116 403,585 461,019 529,432 611,364 Market Size Growth (Annual) 13.1% 13.6% 14.2% 14.8% 15.5% Market Share Penetration (302) 0.0% 0.0% 0.0% 5.1% 18.2% 29.1% Number of Procedures 0 0 0 23,442 96,231 177,856 Units Per Procedure 1.0 1.0 1.0 1.0 1.0 1.0 Price per procedure $ 200 200 $ 200 200.0 $ 200 $ 200 Price Growth 0% 0% 0% EU QTRLY Sales ($) $ - $ - $ - $ 4.7 $ 19 $ 36 % Growth (qtrly) #DIV/0! 311% 85% International OMS-302 (Premium / Refractive Lense): 2012 2013 2014 2015 2016 2017 0.4 MLN "Refractive Lense" at baseline: annual procedures (2012) 406,101 422,758 440,098 458,149 476,940 496,502 Market Size Growth (Annual) 4.1% 4.1% 4.1% 4.1% 4.1% Market Share Penetration (302) 0.0% 0.0% 0.0% 1.5% 6.3% 10.5% Number of Procedures 0 0 0 6,930 29,887 52,195 Units Per Procedure 1.0 1.0 1.0 1.0 Price per procedure $ - $ 150 $ 200 200.0 $ 200 $ 200 Price Growth 0% 0% 0% International Annual Sales $ - $ - $ - $ 1 $ 6 $ 10 World Wide Cataract Revenues $ - $ - $ 34.4 $ 95.1 $ 158.8 $ 226.5 % Growth (qtrly) 177% 67% 43% World Wide Opthalmic Revenues $ - $ - $ 43.1 $ 124.6 $ 221.0 $ 323.6 % Growth (qtrly) 189% 77% 46% Totol US Opthalmic Revenues $ - $ - $ 43.1 $ 107.0 $ 172.0 $ 242.0 % Growth (qtrly) 148% 61% 41% Total International Opthalmic Revenues $ - $ - $ - $ 18 $ 49 $ 82 % Growth (qtrly) Grand Total ALL Opthalmic Revenues $ - $ - $ 43 $ 125 $ 221 $ 324 % Growth (qtrly) 189% 77% 46% Source: Maxim Estimates & Based on Market Scope, Comprehensive Report on the Global IOL Market, 2011.Maxim Group LLC 12
  • Omeros Corporation (OMER)Clinical data for OMS103HP. OMS103HP has resulted in a lot of volatility for Omeros sharesand a lot of confusion regarding the efficacy of the product. The initial phase III trial (which tookseveral years to complete enrollment) missed its primary endpoint last year in ACL repair. As aresult, the stock fell sharply as investors lost confidence in the company and thePharmacoSurgery platform. Since that time, the ophthalmology program has reported solid data.Where does that leave OMS103HP? Initially being developed around anterior crucial ligamentrepair of the knee and now with a failed phase III trial, investors have given up – but not thecompany. Currently, OMS103HP is in a phase III trial for the repair of meniscectomy injury. Inthe phase II study, significant results were reported.Investors are acutely aware that OMS103HP missed its primary endpoint in the anterior Cruciateligament (ACL) phase III study last year. However, in the ACL trial, patients were evaluated byraters comprised of physical therapists. There were imbalances observed among the physicaltherapists, which created a confounding effect on the scores and subsequent results. Contrast thiswith the results in the meniscectomy trial. The primary endpoint for this trial was the performanceon the symptoms domain of the Knee Injury and Osteoarthritis Outcome Score or KOOS. KOOSis a validated patient-reported outcome measure already used in the successful Phase 2meniscectomy trial. KOOS consists of five subscales: pain, other symptoms, function in dailyliving (ADL), function in sport and recreation, and knee-related quality of life. The primaryendpoint would focus only in the “symptoms” relief reported by the patients.Next clinical events: Phase III enrollment; data is expected 2H-2012. The U.S. trial isexpected to have data in the second half of 2012. The European trial (a combination of US & EUsites) could begin next year. The trial was based on a phase 2 study that was vehicle-controlled,randomized, double-blinded and a multi-center study (10 U.S. sites) with two arms: OMS103HPand vehicle 90-day postoperative follow-up. Key endpoints included knee function, range ofmotion, and pain as well as a consistent improvement over 90 day period (KOOS Outcomesscores).Exhibit 8: OMS302: Excellent Phase II Data: OMS103HP: Meniscectomy Trial showedconsistent improvement across all KOOS subscales.Source: OmerosMaxim Group LLC 13
  • Omeros Corporation (OMER)Exhibit 9: Graphic Representation of OMS103HP Being Used During Arthroscopy: Note theaddition of OMS103HP requires no change to the surgical procedure, and it will be pre-packagedin a single vial use, pre-dosed and pre-formulated. The market Opportunity for meniscectomy is significant. We assume that at least 2 mln meniscectomy procedures performed in the US alone in 2011. In our model, we assume no sales in this indication for the sake of conservatism. With that said we would normally model a modest growth rate in the number of procedures today (1.5%) and a product launch in 2015 at pricing of $100 per unit with an average of 3 units used per procedure. Our market share assumptions would normally include an initial share in the low single digits (2016) rising. We should also include “International” sales (primarily EU based) in the future. As such, any good news from this program is upside to the company.Source: OmerosExhibit 10: Annual Revenues - Arthroscopy Model: OMS103HPNote: We do not include these revenues in the model for the sake of conservatism and to makethe point that arthroscopy only represents upside for the company. U.S. OMS-103HP (Meniscetomy): Knee 2012 2013 2014 2015 2016 2017 2.0 MLN "KNEE" at baseline: annual arthroscopies (2011) 2,011,952 2,043,372 2,074,018 2,103,891 2,132,995 2,161,333 Market Size Growth (Annual) 1.6% 1.5% 1.4% 1.4% 1.3% Market Share Penetration (103-HP) 0.0% 0.0% 0.0% 2.3% 7.5% 11.5% Number of Procedures 0 0 0 47,494 160,064 248,641 Units Per Procedure 3.0 3.0 3.0 3.0 3.0 3.0 Price per Unit $ - 0 $ - 101.1 $ 104 107 Price Growth 3% 3% U.S. Annual Sales $ - $ - $ - $ 15 $ 50 $ 57 % Annual Growth 245% 15% Western Europe OMS-103HP (Menisectomy): Knee 2012 2013 2014 2015 2016 2017 1.8 MLN "KNEE" at baseline: annual arthroscopies (2011) 1,905,221 1,934,675 1,963,399 1,991,395 2,018,666 2,045,216 Market Size Growth (Annual) 1.5% 1.5% 1.4% 1.4% 1.3% Market Share Penetration (103-HP) 0.0% 0.0% 0.0% 2.3% 7.5% 11.5% Number of Procedures 0 0 0 44,953 151,484 235,282 Units Per Procedure 3.0 3.0 3.0 3.0 3.0 3.0 Price per Unit $ - 0 $ - 101.1 $ 104 107 3% 3% International Annual Sales $ - $ - $ - $ 14 $ 47 $ 54Source: Maxim estimates.Maxim Group LLC 14
  • Omeros Corporation (OMER)OMS201: Urology. OMS201 is the company’s earliest-stage PharmacoSurgery platform product.It is being developed for use during urological surgical procedures, including bladder endoscopy,cystocopy, minimally invasive prostate surgery, and ureteroscopy. OMS201 consists of aproprietary combination of an anti-inflammatory agent (ketoprofen, an NSAID) and a smoothmuscle relaxant (nifedipine, a calcium channel blocker). As is true with the more advancedPharmacoSurgery products, the two components are generically available, FDA-approved drugswith solid profiles.OMS201 is intended to be delivered directly to the surgical site during uroendoscopic proceduresto inhibit surgically induced inflammation, pain, and smooth muscle spasms. Potential clinicalbenefits include improved renal stone passage, the ability to facilitate the placement of a ureteralaccess sheath, and the reduction of the need for ureteral stents, to reduce postoperative pain,frequency, and dysuria.Exhibit 11: The Ureteroscopic Procedure: The physician passes an ureteroscope through theurethra and bladder into the ureter. The physician pilots the scope through the ureter until itreaches the target (in this diagram, a kidney stone). No cuts are made in the body.Source: http://www.med.nyu.edu/cgi-bin/healthwise/healthwise.cgi?popup=1&hwid=zm6114The benefits of OMS201. A key benefit of OMS201 is the prevention or inhibition of thesurgically induced inflammation and smooth muscle spasm that is often seen during theseprocedures, complicating them. In fact, surgeons routinely place uretal stents in patientsfollowing ureteroscopy to prevent ureteral strictures and occlusion. Many surgeons commonlyplace an uretal access sheath (UAS) to protect the lining of the urethra and ureter. OMS201 couldfacilitate the placement of the UAS by reducing the inflammation associated with the procedure,which then reduces downstream surgical complications, such as the placement of uretal stents.Maxim Group LLC 15
  • Omeros Corporation (OMER)Clinical Data of OMS201: UrologyIn 2008, Omeros conducted a Phase I study on OMS201. The study was a randomized, double-blind, vehicle controlled and parallel-assigned trial to evaluate the systemic absorption and safetyof patients receiving primary treatment for endoscopic removal of urinary stones. The resultsdemonstrated minimal absorption levels of drugs (systemically) with no serious events. The datafrom this trial then led to a second more advanced Phase I/II trial, which found that OMS201 wassafe and well tolerated in the study. The incidence of adverse events was similar in the twoOMS201-concentration arms and the group receiving the vehicle. No adverse events wereconsidered treatment-related by investigators. There were no deaths or discontinuations foradverse events. Only one serious adverse event was reported, and it occurred in a vehicle-treatedpatient.The trial also gave some insight into which endpoint might be used in a larger study, such as“directed to ease surgery,” including the size of the uretal access sheath (UAS) that can be usedduring the surgical procedure, the time to complete the procedure, and the overall surgicaloutcome (during the first post-operative week), post-operative pain, pain medications used, andlower urinary tract symptoms.For now, the program is on hold as the company evaluates its financial resources and prioritizesthe most promising programs. COMPETITIONThe pharmaceutical industry is highly competitive and characterized by a number of established,large pharmaceutical companies, as well as smaller companies like Omeros. With that said, weare not aware of any products that directly compete with Omeros PharmacoSurgery productcandidates that are approved for intra-operative delivery in irrigation solutions during surgicalprocedures. It is expected that the company’s PharmacoSurgery product candidates couldcompete with preoperative and postoperative treatments for mydriasis, pain, and inflammation. Ifapproved, Omeros expects that the primary constraint to market acceptance of thePharmacoSurgery product candidates will be surgeons who continue with their respective currenttreatment practices and do not adopt the use of these product candidates, as well as the level ofreimbursement surgeons receive for the administration of these product candidates. It is alsoimportant to note that premium ILRs (lens replacements) do not rely on insurance reimbursementand tend to be out of pocket.The company’s clinical and preclinical product candidates face competing products. For example,in the PDE10 inhibitors space (for use in the treatment of schizophrenia and other diseases thataffect cognition) there are others in development. On the Plasmin front, Bayer HealthCarePharmaceuticals is currently authorized to market Trasylol® in Canada for patients undergoingcoronary artery bypass graft surgery, and any product Omeros develops in this space for suchindication would directly compete with Trasylol® in Canada as well any other countries in whichTrasylol® is authorized to be marketed. We also know that there are other companies attemptingto de-orphanize orphan GPCRs. If any of these companies is able to de-orphanize an orphanGPCR before Omeros, it may be difficult to establish an exclusive or commercially valuableintellectual property position around that orphan GPCR.Maxim Group LLC 16
  • Omeros Corporation (OMER) TECHNOLOGY PLATFORM AND PIPELINEPreclinical and discovery programs: MASP-2. Omeros is developing MASP-2 (Mannan-binding lectin Associated Serine Protease-2) antibody therapy, OMS721. MASP-2 represents anovel pro-inflammatory protein target present in the complement system. MASP-2 is downstreamof MBL in the lectin-complement pathway and upstream of the C2-C5 cascade. Omeros believesthat MASP-2 plays a significant role in macular degeneration, ischemia reperfusion injury,transplant surgery, and renal disease, as well as aHUS, PNH, TTP and HUS.Exhibit 12: Graphic Representation of the Lectin-Induced Complement PathwaySource: Biocarta: Lectin Induced Complement PathwayThe complement cascade of proteolytic factors involved in cellular lysis can be initiated byseveral different factors, including antibody-dependent and antibody-independent recognition ofinfectious organisms (see classical and alternative complement pathways). In the lectin-inducedcomplement cascade, carbohydrates on the surface of microbial cells activate the complementcascade by binding to mannan-binding lectin (also called the mannan-binding protein, Mbl/Mbp).Mbp is an acute phase serum protein whose expression is induced by microbial infection. Thebinding of Mbl to microbial ligands activates the Mbl associated serine proteases MASP-1 andMASP-2, triggering the cleavage of C2 and C4 to create C4bC2a, a C3 convertase that cleaveslarge numbers of C3. MASP-1 and MASP-2 are similar to the C1 protease in the classicalcomplement pathway. Once formed the C3 convertase cleaves and activates the remainingcomplement factors leading ultimately to formation of a pore in the bacterial membrane by themembrane attack complex (MAC) that lyses the bacterial cell. The lectin-induced pathway alsoappears to play an important role in the activation of phagocytotic cells by infection. Although theinitiating event activating the complement cascade is distinct in the lectin-induced pathway, fromthe C3 convertase onward the lectin induced complement pathway is the same as the classicalcomplement pathway. Since antibodies are not required in the lectin-induced pathway, this aspectof the immune response is part of the innate immune response. The importance of this pathway tothe immune response has been demonstrated by the identification of children and adults with littleor no Mbl who lacked normal phagocytotic responses and are highly susceptible to infection.Maxim Group LLC 17
  • Omeros Corporation (OMER)Exhibit 13: Early Experiments in Mouse Models of Age-Related Macular DegenerationSuggest MASP-2 Plays a Pivotal Role. Systemic administration of MASP-2 antibodies to miceproduced a dose-dependent reduction of the growth of blood vessels with a maximal effect of a50% inhibition of CNV (choroidal neovascularization). Choroidal VEGF Induction Neovascularization (CNV)Source: OmerosExhibit 14: Effect of a Single Dose of Systemically Delivered MASP-2 Antibody onLaser-Induced Choroidal Neovascularization (CNV). MASP-2 antibody (1mg/kg) reducedchoroidal neovascularization in the mouse model of AMD (Newman-Keuls; p < 0.01)Source: OmerosMaxim Group LLC 18
  • Omeros Corporation (OMER)Exhibit 15: The Myocardial Ischemia-Reperfusion (MIRP) Injury Mouse Model AlsoSuggests MASP-2 Is Highly Active.Source: OmerosThe potential of the Omeros MASP-2 antibody is significant, in our opinion. MASP-2 is the onlyprotein unique to, and required for, the function of the lectin complement pathway. This sciencerelates directly to the immune response (classical pathway, alternative pathway, and the lectindependent pathway). Omeros compares MASP-2 to Alexion’s Soliris (see the next exhibit).Exhibit 16: Only One Complement Agent on the Market Today: Soliris (eculizumab).Soliris is a humanized monoclonal antibody that blocks the activation of terminal complement atC5, preventing the formation of C5a and the terminal complement complex, C5b-9. On themechanism of action slide below, note that OMS721 works upstream of Soliris in this pathway.Source: Omeros & Hematology, October 2007; 12(5): 371-376Maxim Group LLC 19
  • Omeros Corporation (OMER)Exhibit 17: Mechanism of Action for OMS721: A Human Monoclonal Antibody that InhibitsMASP-2 and Blocks the Lectin Pathway of ComplementSource: OmerosSoliris (eculizumab). Soliris is the brand name for the antibody eculizumab, which is currentlyapproved in the United States and Europe, as well as a number of other major markets for thetreatment of the rare blood disorder paroxysmal nocturnal hemoglobinuria (PNH). Since initialcommercialization in 2007, Soliris has generated over $400 million in worldwide sales – andsales are still growing. Soliris is one of the most expensive commercially approved drugs atapproximately $400,000 per patient per year. The drug works by targeting a component of theimmune system that causes PNH and is administered as a 35-minute intravenous infusion. Dosingbegins at 600 mg every week for four weeks followed by 900 mg every two weeks.The first series of clinical studies of eculizumab was in patients with rheumatoid arthritis, and inpatients with lupus nephritis as far back as 1998. A series of other indications (includingmembranous nephritis, psoriasis, dermatomyositis and bullous pemphigoid), was examined overthe years. The most compelling clinical results came in studies of patients with PNH, a rareblood disorder in which the host immune system attacks red blood cells (RBCs). This programtook precedent over other indications and eventually led to Soliris’ approval. Today, Soliris haschanged the treatment paradigm for patients with PNH.This success of Soliris creates an interesting question: What is the value of the OmerosMASP-2 program? In comparison to Soliris, MASP-2 acts at the top of the lectin-dependentpathway and has no interference with the classical pathway (antibody-dependent classicalcomplement activation). Indications for MASP-2 range from age-related macular degeneration(AMD) to ischemia reperfusion injury (which typically follows organ transplant, myocardialinfarction, coronary artery bypass grafts, aortic aneurysm repair, stroke, and gastro-intestinalvascular injury as well as aHUS, PNH, TTP and HUS). Other favorable attributes relate to thepotential to deliver MASP-2 antibodies systemically, a therapeutic potential at a low effectivedose, and a low cost of goods. A MASP-2 candidate (OMS721) has been selected for clinicaldevelopment this year (2012).Maxim Group LLC 20
  • Omeros Corporation (OMER)Plasmin program: OMS-616 antifibrinolytic agent: Omeros is developing an antifibrinolyticagent for the control of blood loss during surgery or resulting from trauma. Excessive bleedingduring cardiac surgery is known to increase overall morbidity and mortality. In an attempt tocontrol this bleeding, patients undergoing cardiac and other extensive surgery often receiveantifibrinolytic compounds. These drugs inhibit plasmin, an enzyme present in blood thatdegrades fibrin clots. Because plasmin degrades fibrin clots, an agent that inhibits plasmin mayhave potential utility for reducing blood loss due to trauma or surgery.Prior to withdrawal from the market in 2008 for safety concerns, the antifibrinolytic Trasylol(aprotinin) had been shown in a number of studies to be more effective at reducing blood lossthan the other two most commonly used antifibrinolytics on the market today, tranexamic acidand epsilon aminocaproic acid. While Trasylol is a potent inhibitor of plasmin, it is non-selective.In addition to plasmin, it significantly inhibits kallikrein and Factor XIa, two enzymes importantin promoting clotting, and their inhibition can increase bleeding. Trasylol was found to beassociated with a number of safety issues, including increased mortality. Further, it is a bovineprotein associated with anaphylactic reactions. While the specific cause of increased deathremains unknown, an often-cited explanation is the lack of specificity of Trasylol.Omeros’ proprietary agents also inhibit plasmin but, unlike Trasylol, they do not significantlyinhibit kallikrein and Factor XIa. Additionally, these agents are derived from human protein,which may reduce immunological side effects. The properties of these proprietary agents aredescribed in a peer-reviewed article titled "Engineering Kunitz Domain 1 (KD1) of Human TissueFactor Pathway Inhibitor-2 to Selectively Inhibit Fibrinolysis: Properties of KD1-L17R Variant"that was published in the February 11, 2011 issue of the Journal of Biological Chemistry. Webelieve the efficacy and improved selectivity of these agents can provide a novel approach to thecontrol of bleeding from surgery and trauma.Next Steps: Manufacturing scales up and the potential start of a phase 1 trial by 1H-2013.Exhibit 18: OMS616 Is a Potent Inhibitor of Plasmin. It is a single amino acid mutation of thefirst Kunitz domain (KD1) of tissue factor pathway inhibitor 2 (TFPI-2). It is believed to behighly selective and a potent inhibitor of plasmin activity and selectivity significantly reduces off-target inhibition of kallikrein and Factor XIa and associated anticoagulant activity. It is asignificantly more selective antifibrinolytic agent than Trasylol.Source: OmerosMaxim Group LLC 21
  • Omeros Corporation (OMER)Exhibit 19: OMS616 Comparison with Other AntifibrinolyticsSource: OmerosExhibit 20: OMS616 Inhibits Plasmin with Potency Equal to Trasylol (top charts) and IsSelective for Plasmin (bottom charts).Source: OmerosMaxim Group LLC 22
  • Omeros Corporation (OMER)Central Nervous System ProgramsAddiction programs: (PPAR-γ (OMS403)/PDE7 inhibitors (OMS527). Omeros is developingproprietary compositions that include PPAR-γ (peroxisome proliferators-activated receptor) forthe treatment and prevention of addiction to substances such as opioids, nicotine, alcohol, andamphetamines, as well as other compulsive behaviors. OMS403 is such a candidate. PPARγ isexpressed in adipose tissue, macrophages, brain tissues (lateral hypothalamus, paraventricularnucleus of the hypothalamus, arcuate nucleus, and ventral tegmental area). This link betweenPPAR-γ and substance abuse was previously unknown and, as such, the company has filed patentapplications claiming the use of PPAR-γ agonist alone and in combination with other agents.A pre-clinical rat model of alcohol and nicotine addiction demonstrated that administration of aPPAR agonist significantly reduced the voluntary intake of alcohol and nicotine, stress-inducedrelapse to alcohol and nicotine seeking behavior, and the associated withdrawal symptoms.Exhibit 21: PPAR-γ Agonist in Animal Model of Alcohol Addiction Alcohol Intake 7 Vehicle 6 PPa 30mg/kgEthanol Intake (g/kg) 5 4 * * * * * * * 1 N: 9 msP rats/group *P<0.05; **P<0.01 0 8 0 1 2 3 4 5 6 7 DaysSource: OmerosEuropean pilot study design – alcohol addiction: The trial is a three-arm (four patients perarm), 11-month-long, open label study. Arm 1: 30mg/day pio; Arm 2: 50mg/day naltrexone; Arm3: counseling. Patients were matched for age, status, education, and alcohol addiction years. AnAUDIT (Alcohol Use Disorders Identification Test) score was used.Results: • Arm 1: Complete abstinence after three months of treatment. All four patients are no longer receiving the drug, but they are under counseling. After more than five months into this “pioglitazone-free” phase, all remain abstinent. Amelioration of co-morbid depression and anxiety was seen. All patients were compliant (four patients in treatment for 11 months). • Arm 2: Two patients failed to reach abstinence, and they were switched to gammahydroxybutirrate (substitution therapy). The other two individuals dropped out of the study between weeks 22 and 24. • Arm 3: No significant reduction of daily ethanol consumption and craving for alcohol. All subjects dropped out of the study after the initial two months.Maxim Group LLC 23
  • Omeros Corporation (OMER)Exhibit 22: PPARγ Agonist Administration Study in Rats. The results showed a reduction ofnicotine self-administration, a reduction of stress-induced relapse to nicotine seeking, and areduction of nicotine withdrawal symptoms. Nicotine self-administration 30 Number of responses (2hr) 25 N: 9 Long Evans rats/group 20 *P<0.05 15 * 10 5 0 Veh PPa 30mg/kgSource: OmerosEuropean pilot study design – nicotine addiction: The trial consists of three groups with threeto four patients in each group. Patient-entry criteria includes that the patients were smoking, onaverage, 30 cigarettes/day for over 23 years. Three arm study: PPARγ agonist: Four patients,15mg/day (1st month); 30mg/day (2nd month) versus Varenicline (VAR: Chantix): Threepatients, dose titrated from 0.5 to 2.0 mg/day and versus Bupropion: Three patients, 150 mg/kg.The outcome following two months of treatment: Smoking cessation was achieved in both thePPa and VAR groups; however, the PPA group showed none of the side effects associated withVAR.Exhibit 23: Smoking cessation was achieved in both the PPa and VAR groups Smoking Reduction (%) P1 P2 P3 P4 PPa 100 98 96 75 VAR 100 94 93 BUP 40 45 DO*Source: Omeros * patient dropped outMaxim Group LLC 24
  • Omeros Corporation (OMER)Exhibit 24: OMS527’s Efficacy in an Animal Model of Parkinson’s Disease of a PDE7Inhibitor. This shows that a representative PDE7 inhibitor is equally effective as (and greaterthan 50x more potent to) L-DOPA. Sub-therapeutic doses of both a PDE7 inhibitor and L-DOPAin combination resulted in efficacy greater that the expected sum of the effects of the individualagents, demonstrating the potentiation of L-DOPA’s effect. 7.50 7.00Stride 6.50Length (Cm) 6.00 5.50 5.00 Control MPTP 1mg / kg 5mg / kg 0.01mg / kg 0.05mg / kg 0.1mg / kg Theoretical 1mg / kg L-DOPA L-DOPA OMS181869 OMS181869 OMS181869 Additive L-DOPA + 1mg / kg 0.05mg / kg L-DOPA + OMS181869 0.05mg / kg OMS181869 Potentiates 50 to 100x More Potent Than AND Its Activity L-DOPASource: OmerosIn a murine (MPTP) model, mice are trained to walk across a sheet of paper with inked pawsand stride length is measured. MPTP administration causes extensive damage in dopaminergicneurons. Following administration of MPTP, stride length is measurably decreased. Stride lengthis fully restored by clinically effective agents (L-DOPA, dopaminergic agonists). Stride length isfully restored by PDE7 inhibitors (five distinct chemical classes), including Omeros’ leadcompound PDE7 inhibitors also enhancing the effect of low dose L-DOPA.Exhibit 25: OMS527 May Have Utility in Parkinson’s (PDE7 inhibition restores stride length).Source: OmerosPDE7 inhibitors may provide an alternative to L-DOPA or related drugs, or they may allow dosereduction of these drugs, reducing the associated side effects. The Michael J Fox foundation issupporting this research. In exchange, the foundation receives access to data.Maxim Group LLC 25
  • Omeros Corporation (OMER)Exhibit 26: OMS527 for Addiction: Heroin Acquisition in Animal Model. The figure on theleft demonstrates the effects of treatment with OMS824 (PPARγ) in rats. The untreated groupcontinued to self-administer heroin, while the treated group showed complete ablation of heroinacquisition. The figure on the right demonstrates a positive control. The same animals tested forheroin acquisition were tested for self-administration of food. The PPARγ did not affect theanimal’s food acquisition. As such, we can conclude that the agonists effect in heroin reductionwas not a result of cognitive, memory or function impairments. Heroin self-administration Food self-administration 150 200 Pre-treatment Treatment * Num ber of rewards (30 min) * * 150mg of heroin/rat 100 * * * * * 100 * 1 2 3 4 50 Treatment day 50 0 0 1 2 3 4 5 6 7 8 0 Day 0 1 2 3 4 5 6 7 8 N: 10 Wistar rats/group Vehicle N: 10 Wistar rats/group Day OMS182428 *P<0.05; **P<0.01 *P<0.05; **P<0.01Source: OmerosExhibit 27: Chronic Effect of PDE7 Inhibition on Cocaine Self-Administration. Datasupports that chronic PDE7 inhibition reduces cocaine self-administration.Source: OmerosMaxim Group LLC 26
  • Omeros Corporation (OMER)Exclusive license agreement with Daiichi Sankyo. Under an agreement with Daiichi SankyoCo., Ltd. (DSKYF-NR $16.98) (successor-in-interest to Asubio Pharma Co., Ltd.) Omeros holdsan exclusive license to PDE7 inhibitors claimed in certain patents and pending patent applicationsowned by Daiichi Sankyo for use in the treatment of movement disorders and other specifiedindications, such as the treatment of addiction and compulsive disorders. Under the agreement,Omeros will make milestone payments to Daiichi Sankyo of up to an aggregate total of $30.2million upon the achievement of certain events. However, if only one of the two target indicationsadvanced through the milestones, the total milestone payments are less ($23.5 million). Themilestone payment events include successful completion of preclinical toxicology studies; dosingof human subjects in Phase 1, 2 and 3 clinical trials; receipt of marketing approval of a PDE7inhibitor product; and reaching specified sales milestones. In addition, Daiichi Sankyo is entitledto receive from the company a low single-digit percentage royalty of any net sales of a PDE7inhibitor licensed under the agreement by Omeros or its sublicensee(s), provided that if the salesare made by a sublicensee, then the amount payable by us to Daiichi Sankyo is capped at anamount equal to a low double-digit percentage of all royalty and specified milestone paymentsreceived by Omeros from the sublicensee.Next clinical steps. The company selected OMS527 in cocaine addiction to move forward intothe clinic. Phase 1 data is now expected in 1H13. We note that there are currently no approvedtherapies to treat cocaine addiction. As you can tell from the previous series of pre-clinical data,Omeros believes that the PDE7 target broadly controls addiction disorders and compulsivebehaviors. In addition, Omeros will also conduct a phase 1 study in patients with Parkinson’sdisease and collect “finger-tapping” efficacy data. If positive, the plan is to advance clinicaldevelopment (in Parkinson’s disease).PDE10 Program: (OMS824)Treatment of schizophrenia and cognitive disorders. PDE10 is an enzyme that is expressed inareas of the brain that are strongly linked to schizophrenia and other psychotic disorders.Preclinical studies have shown that PDE10 inhibitors may address some of the limitations ofcurrently used anti-psychotic drugs, such as weight gain, improved cognition, and a reduced riskof sudden cardiac death. Omeros acquired the PDE10 program as part of the Nura acquisition(2006). Pre-clinical development of this program is supported by funds from the Stanley MedicalResearch Institute (SMRI). Should a product be commercialized, the company will pay royaltiesback to SMRI to a maximum capitated amount.Funding agreement with The Stanley Medical Research Institute. Omeros development issupported by funds from The Stanley Medical Research Institute, or SMRI, a non-profitcorporation that supports research on the causes and treatment of schizophrenia and bipolardisorder. Under the agreement, Omeros receives grant and equity funding upon achievement ofproduct development milestones through Phase 1 clinical trials totaling $9.0 million, subject tothe mutual agreement with SMRI. Through December 31, 2011, Omeros had received $5.7million from SMRI, $3.2 million of which was recorded as equity funding and $2.5 million ofwhich was recorded as revenue. Omeros also agreed to pay royalties to SMRI based on any netincome the company receives from sales of a PDE10 product. Based on the amount of grantfunding received as of December 31, 2011, the maximum amount of royalties payable to SMRIwas $12.8 million.Maxim Group LLC 27
  • Omeros Corporation (OMER)Exhibit 28: PDE10: A Replacement for Atypical Antipsychotics with Reduced Side Effects Prepulse Inhibition (%) 90 80 Vehicle 70 PDE10 Inhibitor 60 50 40 30 20 10 0 73 dB 76 dB 79 dB 82 dB Prepulse LevelsSource: Omeros … WITHOUT the Side Effects % of Initial Weight % of Time Exploring Novel Object 104 75 102 70 100 Increased No Body 98 65 Cognition: Weight 96 60 94 Novel Object Increase 92 Recognition 55 90 50 88 45 86 84 40 Vehicle PDE10 Inh Olanzapine Vehicle PCP PCP PCP PDE10 Inh OlanzapineSource: OmerosA rational for PDE10 in Huntington’s disease. It appears as though PDE10 is expressed inbrain regions that are relevant to disorders involving striatum and cortico-striatal signaling.PDE10 inhibition in vivo increases striatal cGMP and enhances cortico-striatal glutamatergictransmission. PDE10 inhibitors are effective in models of cognitive disorders involving fronto-striatal signaling.They appear to: • Reverse phencyclidine (PCP) disruption of attentional set shifting • Reverse PCP disruption of novel object recognition (NOR) • Reverse PCP disruption of auditory gating (pre-pulse inhibition) • Reduce PCP-induced hyperactivity • Reduce conditioned avoidance response (CAR)PDE10 inhibitors prolong survival and delay the signs and symptoms in the R6/2 Huntington’smodel.Maxim Group LLC 28
  • Omeros Corporation (OMER)Exhibit 29: PDE10 is Expressed in Caudate Nucleus and Putamen. It is expressed mostprominently in the cell bodies and terminals of striatal medium spiny neurons (human, monkey,dog, rat, mouse). Immunohistochemistry shows staining of rat striatum and globus pallidus and ofnerve terminals in rat substantia nigra pars reticulate.Source: Coskran et al. J Histochem Cytochem. (2006); 54(11):1205-1213.Exhibit 30: TP10 Significantly Prolongs Survival in the R6/2 Model of Huntington’s Disease(p < 0.0001). The development of the clasping sign is also delayed (*p < 0.01), while the declinein body weight is not affected (not shown). Open field activity is significantly preserved (notshown).Source: Giampa et al. PLoS ONE. 2010; 5(10): e13417. doi:10.1371.Next steps. PDE10 inhibition could expand efficacy and improve safety for the treatment ofschizophrenia, Huntington’s disease, and cognitive disorders. Omeros has identified leadcompounds that possess a high target potency and selectivity, oral efficacy, a favorable PK withno significant off-target interactions, and no initial toxicology concerns. IND-enabling studies areongoing. Huntington’s disease may be the lead indication. The compound scale up is completeand GMP clinical material production is underway. We anticipate Phase 1 data later this year.Maxim Group LLC 29
  • Omeros Corporation (OMER) PHARMACEUTICAL LANDSCAPE & OPPORTUNITY FOR OMEROSA substantial proportion of medicines prescribed in the clinic today by physicians target G-Protein Coupled Receptors (GPCRs), mostly discovered before the advancements in technologyas well as molecular biology. GPCRs play a significant role in many essential physiologicalprocesses. They have been linked to regulation of behavior and mood through GPCRs found inthe brain, inflammation through receptors in the immune system, and metabolic processes, amongothers. The majority of drug development is focused on discovering chemical compounds thatinfluence the ability of the ligand to bind with the GPCR, in effect inhibiting or acceleratingintracellular processes. The high degree of specificity and affinity associated with GPCRs hascontributed to them becoming the largest family of drug targets against a variety of diseases. It isestimated that worldwide annual drug sales in 2007 exceeded $700B, with more than $50B beingspent on drug R&D. According to Insight Pharma Reports, of the 324 total targets for marketeddrugs, 46 are GPCRs and they account for 30-40% of all drugs sold worldwide.Exhibit 31: List of GPCR-Targeting Drugs Class Drug Indication Adrenoreceptor Alpha-1 Hytrin, Alfuzosin Benign prostatic hyperplasia, High blood pressure Alpha-2 Catapres High blood pressure Zebeta, Brevibloc, Kerlone, Sectral, Toprol Beta-1 XL, Lopressor, Tenormin High blood pressure Beta-2 Ventolin, Albuterol Asthma/bronchospasm Inderal, Corgard, Blocadren, Levatol, Betapace, Visken, CoReg, Normodyne, Beta-1/Beta-2 Trandate High blood pressure Calcitonin Calcimar Osteoporosis Dopamine D2 Reglan Heartburn, Slow gastric emptying D2 Haldol, Zyprexa Schizophrenia D2 Requip, Mirapex Parkinson’s disease, Restless legs syndrome D1/D2 L-dopa (Sinemet) Parkinson’s disease, Restless legs syndrome Histamine H1 Claritin, Zyrtec, Seldane Allergies H1 Dramamine Motion sickness H2 Tagamet, Zantac Heartburn/Ulcers Serotonin (5-HT) 5-HT1B Desyrel Anxiety, Depression 5-HT1D Imitrex Migraine headaches Opioid Mu Morphine, Codeine, Fentanyl, Pain Meperidine Mu/Kappa Oxycontin, Percodan Pain CysLT1 Montelukast (Singulair) Asthma Endothelin Receptor Letaris, Bosentan Pulmonary artery hypertension Acetylcholine Receptors M1, M2, M3, M4 and M5 Tolterodine Overactive bladder M1, M2, M3, M4 and M5 Atropine Poisoning M1 Scopolamine Motion sickness, Diarrhea Angiotensin II receptor Losartan, Valsartan Congestive heart failure GLP-1 Byetta Type 2 diabetes Somatostatin Receptors Octreotide Acromegaly, Tumors Prostaglandin E2 receptors Misoprostol Gastric ulcersSource: OmerosMaxim Group LLC 30
  • Omeros Corporation (OMER)The opportunity for Omeros. Company scientists believe that, based on available data, there are363 non-sensory GPCRs of which most are non-orphans (ligands exists that bind to the target)and 119 orphans (refer to exhibit below). A non-orphan GPCR is one for which there is a knownnaturally occurring or synthetic molecule, or ligand, (we might think of it as a key that exists tothe lock) that binds the receptor, while an orphan GPCR has no known ligand (no known key).Without a known ligand, there is no template from which medicinal chemistry efforts can bereadily initiated, nor a means to identify the GPCRs signaling pathway and, therefore, drugscannot easily be developed against orphan GPCRs. This gave birth to reverse pharmacology,deorphanization, a strategy to identify ligands that bind orphan GPCRs uncovering new cellularpathways and leading to development of product candidates that can act at these new potentialdrug targets. Omeros believes (based on available data) that 128, or almost 50%, of the non-orphan GPCRs are targeted by either marketed drugs or drugs in development. Applying thatsame percentage to the 119 orphan GPCRs, approximately 50 are eligible to be drug-targets oncethe ligand is identified. "Unlocking" these orphan GPCRs could lead to the development of drugsthat act at or on these new targets.Having spent time with the senior scientists at the company, we do believe the company’s high-throughput technology has the capability of uncovering compounds for many more GPCRs. Todate, Omeros and others have discovered novel GPCRs for Alzheimer’s disease, mood disorders,obesity, schizophrenia, and cancer (refer to the exhibit below), and the company is uniquelypositioned to discover compounds for many of them.Exhibit 32: GPCRs as Potential Drug Targets 363 Non-Sensory GPCRs TODAY Marketed Marketed No Known 30-40% of All Drugs Ligands Drugs Marketed Drugs Target Only 46 “Orphans” GPCRs In 119 Development The Challenge 82 Promising Targets, but Drug Discovery Difficult Known Not Yet Drug Ligand Required for Assay Development Ligands Targets Signaling Pathway Not Known 244 116 Laborious Fractionation for Natural Ligand Identification Current Technologies Limited Only to Agonist Screening The Opportunity Up to 50+ New Drug TargetsSource: OmerosMaxim Group LLC 31
  • Omeros Corporation (OMER)Exhibit 33: Examples of Orphan GPCR TargetsSource: Omeros G-PROTEIN COUPLED RECEPTORS (GPCRs)GPCRs go by several names such as the seven-transmembrane domain receptors, 7TM receptors,heptahelical receptors, serpentine receptors, and G protein-linked receptors (GPLR) (refer toexhibit below). They represent one of the largest transmembrane proteins spanning the cellsurface interacting with molecules intracellular (inside) and extracellular (outside) of the cell.Molecules, called ligands, located outside the cell interact with transmembrane receptorsactivating signal transduction pathways inside the cell, elucidating cellular responses. Thisligand-receptor interaction was the first classical model for drug design. The ligands that bindand activate these receptors (activating the GPCR by allowing it to bind with a G protein andsetting off a series of events within the cell) include a wide range of compounds such asneurotransmitters, peptides, glycoprotein hormones, and chemokine receptors, to name a few.Exhibit 34: The Seven-Transmembrane α-Helix Structure of a G-Protein-Coupled ReceptorSource: http://structbio.vanderbilt.edu/sanders/Research.htmGPCRs are further divided into sensory, referred to as chemosensory GPCRs (csGPCRs)and non-sensory, referred to as endogenous GPCRs (endoGPCRs). Chemosensory GPCRsare sensory receptors with signals from an exogenous source involved in the perception of light,odors, taste, and sexual attractants. Endogenous GPCRs respond to endogenous signals involvedin metabolism, behavioral regulation (serotonin, dopamine, GABA, and glutamate), reproduction,development, hormonal homeostasis, and the autonomic nervous system (sympathetic andparasympathetic). GPCRs are known to be involved in many disease processes and, as such, alarge percentage of drugs under development are targeting G-protein-coupled pathways. This is amajor medicinal target for drug design.Maxim Group LLC 32
  • Omeros Corporation (OMER)GPCR drug targets are more commonly endoGPCRs, and the full complement of these was firstidentified and characterized in mice and humans at Omeros (Vassilatis et al. PNAS 2003). Theyrepresent targets for about half of all currently used drugs today (refer to the PharmaceuticalLandscape section), and until recently scientists hadn’t clearly understood the mechanismpharmaceuticals use to turn on or off these receptors.GPCR repertoires of human and mouse. Published in the April 15, 2003 issue Proceedings ofthe National Academy of Sciences, Omeros revealed a high level of evolutionary as well asphylogenetic, predictive of ligands, and relationship of human and mouse endoGPCRs. Vassilatiset al. identified 367 human and 392 mouse endoGPCRs, and, using sequence alignment, theydiscovered that 343 endoGPCRs are common for both species. This important finding signifiesthat mice can be used as a model system for humans in studying GPCRs. RT-PCR analysis firstrevealed that endoGPCRs were expressed in multiple, diverse cell types and tissues throughoutthe body. Furthermore, endoGPCRs were mostly, being 94%, expressed in the brain. Asubstantial percentage of these GPCRs were localized in 10 brain areas and 18 peripheral tissues(refer to exhibit below). In situ hybridization confirmed the results generated by RT-PCR bydemonstrating localization of 192 GPCRs in brain (refer to exhibit 5B below)Exhibit 35: Expression of endoGPCRs in the Brain 5A 5B Source: Vassilatis DK, Hohmann JG, Zeng H, Li F, Ranchalis JE, Mortrud MT, Brown A, Rodriguez SS, Weller JR, Wright AC, et al. The G protein-coupled receptor repertoires of human and mouse (2003). PNAS Vol. 100(8), 4903-4908.The mechanism of action behind GPCRs. The receptor exists in equilibrium between activeand inactive states. Before binding of the ligand, GPCRs exist as heterodimers, three subunits ofa G protein (αβγ) bound together. Ligands are mainly either agonists that activate the receptor orantagonists that inhibit it. When bound to their ligands (first messenger), GPCRs are stabilized inan active conformation causing interaction between GPCR and the G protein. The interaction ofthe receptor with agonist results in dissociation of G protein into α and βγ subunits that can theninteract with downstream effectors, triggering an intracellular cascade of signaling events.Effectors including adenylyl cyclase, phospholipases, and ion channels regulate the production ofsecond messenger molecules, which elicit cellular responses by activating a number of signalingpathways. G protein-coupled receptors were originally known as metabotropic receptors, becauseof the downstream process in which something has to be metabolized, specifically turnover oflipid. An important protective mechanism of GPCRs is desensitization – that is turning off thesignal, eliciting no cellular response, despite continuous agonist stimulation. Mechanistically,desensitization may occur through: (1) receptor phosphorylation; (2) receptor internalization; and(3) receptor down-regulation.Maxim Group LLC 33
  • Omeros Corporation (OMER)Exhibit 36: Summary of GPCR Signaling. System has minimum of three components:Ligand binds Receptor → activates G protein → effector.Source: Howard A. Rockman, Walter J. Koch and Robert J. Lefkowitz. Seven-transmembrane-spanning receptors and heart function (2002). Nature 415, 206-212. OMEROS GPCR DISCOVERY & DEVELOPMENT PLATFORMExhibit 37: Basic outline of Omeros’ GPCR discovery and development platform Identify orphan GPCR targets with compelling biology (KO mice, literature) Discover small molecules against target orphan GPCRs using Cellular Redistribution Assay (CRA) Determine signaling pathway affected by target orphan GPCRs and identify nature of interacting small molecules (agonists, antagonists) Optimize compounds through medicinal chemistry Demonstrate efficacy in cell- and/or animal-based disease models Establish intellectual property and advance compounds with desired properties through clinical developmentSource: Maxim and OmerosMaxim Group LLC 34
  • Omeros Corporation (OMER)Omeros has access to a unique deorphanization technology platform, CRA. The companyhas an exclusive option to acquire all patent and other intellectual property rights to this cellularredistribution assay, or CRA, from Patobios. The company has tested and optimized and believesthis technology can be used in a high-throughput screen to identify synthetic molecules, includingantagonists, agonists and inverse agonists, which, following optimization, can be clinicalcandidates targeting orphan GPCRs. In essence, a machine that finds the keys to the locks. Anormal GPCR is localized in the cellular membrane (shown in exhibit below). A mutated,modified, GPCR is localized in the interior of the cell unless bound to its ligand. Ligands arethen introduced; the one that matches the orphan receptor will cause the GPCR to integrate intothe cell membrane. Confocal microscopy further validates the CRA ligand-dependent receptorredistribution to the cell surface. Green fluorescence represents mutated GPCR. In the untreatedgroup, the GPCRs are distributed throughout the cell. As you increase concentration of ligand,from 0.1 nM to 2 nM, mutated receptor is localized to the cell membrane as seen as a greencircular outline in the 2 nM concentration.Exhibit 38: Deorphanization Technology: Cellular Redistribution Assay (CRA) N LS in h e lix 8 A N o rm al G PC R B M o d ifie d G P C R C M o d ifie d G P C R + L ig a n d L ig a n d C e ll C e ll C e ll M e m b rane M e m b rane M e m b ran e GPCR GPCR G PCRSource: OmerosExhibit 39: Ligand-Dependent Receptor Redistribution to Cell Surface U n treated 0.1 n M 1 nM 2 nMSource: Omeros (Butaclamol)In conjunction with CRA, Omeros has developed additional tools, including a proprietary rapidmouse gene knock-out platform technology. The company published this impressive technologyin the September 4, 2007 issue of the Proceedings of the National Academy of Sciences (Vol.104, No. 36: pp. 14406-14411), to create 61 different GPCR-specific strains of knock-out mice,and it has established a battery of behavioral tests that allows the characterization of these knock-out (KO) mice to identify candidate drug targets. In conjunction with this platform, the companyutilizes CRA to identify synthetic molecules, as opposed to naturally occurring ligands, to bindorphan GPCR. To date, 61 different GPCR-specific strains of knock-out mice have beengenerated and 25 different GPCR knock-out strains have been phenotyped.Maxim Group LLC 35
  • Omeros Corporation (OMER)Exhibit 40: Generate Mutated GPCR Mice Based on Omeros’ Rapid Gene KO Technology Identify ES Mutate GPCRs in ES cells with cells with proprietary mutations in virus specific Generate mice from GPCRs mutant GPCR ES cells Create libraries of mutant ES cells Source: Omeros & Gragerov et al. Large-scale, saturating insertional mutagenesis of the mouse genome. Proc Natl Acad Sci 2007 Sep; 104(36): 14406-14411. STEP 1 Construction of a large library (10 million) of mutant embryonic stem (ES) cells generated by retroviral insertions STEP 2 Screen DNA isolated from library pools by Polymerase Chain Reaction (PCR) • Target gene of interest are amplified and analyzed on agarose gel • Bands on gel represent retroviral integration event • Piece is sequenced to determine precise insertion site within the targeted gene STEP 3 Identify and isolate ES cell clones with mutations in specific genes of interest from the constructed library STEP 4 Apply selection to the gene families of GPCRs and nuclear receptors, whom are a challenging target for insertional mutagenesis because almost half of the GPCR- encoding genes are lacking introns STEP 5 Identify and isolate mutant GPCR ES cell clones STEP 6 Blastocyst injection to produce chemeric mice with target gene expression significantly reduced or eliminated STEP 7 Generate 61 different mutant GPCR-specific strains of KO mice Source: Omeros & Gragerov et al. Large-scale, saturating insertional mutagenesis of the mouse genome. Proc Natl Acad Sci 2007 Sep; 104(36): 14406-14411.To date, Omeros has successfully unlocked numerous orphan GPCRs (33 as of April 2012), andwe believe several are very exciting. For example, one is linked to obesity, one to appetite, and athird to cancer. Each receptor was screened against a portion (less than 40%) of its smallmolecule library of 320,000 compounds, specifically 300,000 being of a diverse library and20,000 GPCR-focused libraries.Omeros owns multiple issued U.S. patents, with more pending. All are related to previouslyunknown links between specific molecular targets in the brain and a series of CNS disorders, aswell as to research tools that are used in the GPCR program described above.Maxim Group LLC 36
  • Omeros Corporation (OMER)Exhibit 41: Orphan and Recalcitran Non-Orphan GPCRs Unlocked to DateSource: Omeros DIFFERENT APPROACHS IN DRUG DISCOVERY OF ORPHAN GPCRsStructure-based drug discovery (SBDD). GPCR structure based on X-ray crystallography orNuclear Magnetic Resonance (NMR) creates a structural based design to discover, optimize, andidentify novel ligands for orphan-GPCRs rather than screen through random high-throughputassays. Structural design could be used in conjunction with random screening. The first structureto be solved by x-ray crystallography, relevant to GPCRs, was rhodopsin. The primaryshortcoming of structure-based drug discovery for GPCRs is that crystallization of a receptor thatcrosses seven times the cell membrane is technically quite challenging; to this date, only threeGPCRs have been crystallized and their structure deciphered. In addition, a crystal is staticwhereas receptor-ligand interaction in biology is dynamic. This is especially the case for GPCRsthat can exist in a number of different states based on molecular interactions.Allosteric modulation. A GPCR ligand can bind at the receptor at an orthosteric site (the sitewhere the natural ligand binds) or at a distant site, other than the active one, known as anallosteric site. The majority of currently marketed drugs compete with the naturally occurringendogenous ligand to bind the active site. Allosteric modulators are non-competitive based on itsbinding at a different site, other than the active site, even while the natural endogenous ligand isalready bound. Modulators may bind the allosteric site strongly and enhance the cell signalingcascade, known as an allosteric activator or Positive Allosteric Modulator (PAM) or inhibiting itsactivity, known as allosteric inhibitor or Negative Allosteric Modulator (NAM).Allosteric modulation has potential advantages in terms of selectivity, side effects and toxicity,tolerability, and desensitization compared to conventional therapies currently targeting orthostericmodulation. Orthosteric ligands compete with natural ligands for the same binding site tostimulate the receptor. The modulator often is given in potent concentrations to overpowerexisting natural ligands circulating in surplus. The competitive forces to overcome the binding ofthe natural ligand result in selectivity issues, primarily desensitization, triggered by stimulation ofa receptor in high concentrations for a prolonged period of time resulting in receptor downregulation and eliciting no response, tachyphylaxis. Allosteric modulators do not inducetachyphylaxis since they do not target the same binding site as the natural ligand, but theMaxim Group LLC 37
  • Omeros Corporation (OMER)allosteric site and only stimulates when the receptor is already bound to the natural ligand. Thisis significantly beneficial, characteristically being very selective with a reduced toxic side effectprofile avoiding desensitization. Since the allosteric modulator binds to a different site, highdosage is no longer necessary and medicinal compounds can be administered in lowconcentrations, expanding tolerability among the patient population and reducing its adverse sideeffect profile. Furthermore, novel compounds can be developed to elicit or block a partialresponse rather than a full response. An example would be a partial negative allostericmodulator, with the ability to block the effect of a receptor to a certain degree. Allostericmodulation may represent a novel drug and is gaining popularity in deorphanization of GPCRs,so much so that most companies have active programs in allosteric modulation far more thanSBDD, dimerization, or other areas in development for GPCRs. Major pharmaceuticals, such asGlaxoSmithKline (GSK- $46.58-NR), Pfizer (PFE-$22.45-NR), Boehringer Ingelheim (Private),and others have already designed screening technology to identify allosteric as well as orthosterichits.Exhibit 42: Allosteric ModulationSource: Addex PharmaceuticalsRole of GPCR dimers and oligomers. GPCRs are capable of forming paired protein complexes,known as dimers, with other GPCRs at the cell membrane. Two identical GPCRs can pair up,known as homodimers, or two different GPCRs can form together, known as heterodimers. Themajority of GPCRs exists and functions as homodimers. The binding of an agonist molecule to ahomodimer may cause activation and internalization, resulting in alteration of the binding of asecond molecule. Dimerization is interesting as it presents a novel drug target yet to be explored,but it is still is in its early stages and not sought after as aggressively as allosteric modulation.Functional selectivity. Pharmaceuticals are interested in selecting the direction of cell signalingdown one cascade versus another. Since receptors have the ability to couple to more than one Gprotein, it is possible to influence signaling via a specific G protein cascade based on ligand.Maxim Group LLC 38
  • Omeros Corporation (OMER) VALUATION – MODEL ASSUMPTIONS (PHARMACOSURGERY)Ophthalmology surgery program: Cataract and reflective lens exchange (RLE) 1. We assume that OMS302 receives FDA approval and is commercialized in 1Q14 2. We assume on average 1 units at $250 per unit are used per procedure in the United States, and $200 in Europe and Rest of World (ROW). 3. We assume a COGS (manufacturing) of 2%. 4. Our data source for incidence and prevalence comes from Market Scope, Comprehensive Report on the Global Market, 2011. 5. 3.6 million cataract procedures in the United States and 3.3 million in Western Europe (2011), with a 3-4% annual growth rate in the United States and 2-3% for Western Europe. We factor in modest international sales (which may be overly conservative) as the international market is significant. 6. Omeros will initially target the cataract/premium lens and RLE marketplace. 7. The premium ILR (intra ocular lens replacement) market is growing at 16% year. 8. We assume a large build out for Sales & Marketing, and our numbers may be too high – but for conservatism, we assume such. It is likely that Omeros will utilize an external sales force to commercialize and regionally partner, but we have modeled a rise in Sales and Marketing to cover these costs.Arthroscopy surgery program: Meniscectomy and off-label (ACL, shoulder, wrist, hip, and ankle) 1. We assume a market size of 1.75 million meniscectomy-related knee arthroscopic procedures per year by 2012. (We know from conversations with thought leaders that approximately 2/3 of knee-related arthroscopic procedures are in fact meniscectomy- related). 2. For conservatism, we have not modeled any market share in our EPS or FCF models. If we did, we would assume that the product could be on the market by late 2014 or early 2015. 3. We make similar assumptions for the international marketplace in 2014. 4. As we are not including revenues in our model, we do not include G&A for this area. It is likely that Omeros can leverage its distribution/sales efforts for OMS302 for 103HP. 5. We have modeled other arthroscopies such as shoulder, elbow/wrist/hip, and ankle. We would expect some off-label use in these areas, but we do not present those models in this report. 6. For meniscectomy, we assume 3 units per procedure versus ACL repair (4 units) and others (2 or 1 unit).Arthroscopy surgery program: Urology (we assume no revenues through 2017 until next clinical stepsare prioritized) 1. We provide a market model and price and share assumptions for urology platforms; however, for the sake of conservatism, we also do not include these revenues in our income statement. We hope at some point to see Omeros reactivate the urology platform. 2. Our model is extended through 2017 to reflect the potentials of the PharmacoSurgery platform, which should be evolving over the next five years.Other relevant modeling assumptions 1. We assume a modest ramp in the tax rate beginning in 2015 as a result of accumulated tax credits (NOLs). 2. We build into the model several assumptions that the company will need to raise additional capital; however, we see only modest dilution and forecast a share count of approximately 30 million by 2015 versus today’s 22 million. 3. We do not include in our model any revenues from license agreements from the company’s early-stage pipeline products and/or GPCR platform. We model this way for the sake, again, of conservatism.Maxim Group LLC 39
  • Omeros Corporation (OMER) VALUATIONOur valuation metrics for Omeros are based on several models including Free Cash Flow (FCF),DCF, EPS, and Sum of the Parts. We equal weight each of these metrics to arrive at an averagefor our 12-month target price of $23. Where our model may differ from consensus is in our use ofa 20% discount rate for the EPS and FCF models. We believe that 20% is justified given the highp-values that were demonstrated in the ophthalmology trial. One critical note, however, is theinability of these metrics to forecast the outcome of a clinical trial event. These metrics allassume a positive outcome for the second OMS302 ophthalmological surgery trial. Valuationmodels like these can be helpful in understanding the leverage that exists around a productscommercial success. In the case of Omeros ophthalmological platform, the low cost of goods ofthe product has the potential to translate into biotechnology (high) margins. As such, we see a lotof leverage on success of OMS302. EPS and FCF also fail to take into account the early stagepipeline value and the potential that it creates for partnerships and; therefore, revenue generationinto the firm. Our share count is a year-end estimate that assumes the company raises capital. Average of Metrics (Target) $ 23 FCF Price Target $ 17 Year 2012DCF Valuation Using FCF (mln): 2012 2013 2014 2015 2016 2017units (millions - $) 2012E 2013E 2014E 2015E 2016E 2017EEBIT (34,015) (37,960) (22,480) 50,501 141,001 237,223Tax Rate 0% 0% 0% 5% 10% 18%EBIT(1-t) (34,015) (37,960) (22,480) 47,976 126,901 194,523CapEx (2,755) (2,783) (2,811) (2,839) (2,867) (2,896)Depreciation 452 470 489 509 529 550Change in NWCFCFF (36,318) (40,272) (24,802) 45,646 124,563 192,177PV of FCFF (30,265) (27,967) (14,353) 22,013 60,071 77,232Discount Rate 20%Long Term Growth Rate 1%Terminal Cash Flow 1,021,574Terminal Value YE2017 410,548NPV 497,279NPV-Debt 19,446Shares out (thousands) 27,453 4Q12ENPV Per Share $ 17Source: Maxim estimatesCurrent Year 2012 Discount Rate and Earnings Multiple Varies, Year is ConstantYear of EPS 2017 2017 EPSEarnings Multiple 10 25.9 5% 10% 15% 20% 25% 30%Discount Factor 20% 0 $0.00 $0.00 $0.00 $0.00 $0.00 $ -Selected Year EPS $ 6.44 5 $25.25 $20.01 $16.02 $12.95 $10.56 $ 8.68NPV $ 25.90 10 $50.50 $40.02 $32.04 $25.90 $21.12 $ 17.36Source: Maxim estimates Earnings 15 $75.74 $60.03 $48.06 $38.85 $31.68 $ 26.04 Multiple 20 $100.99 $80.03 $64.08 $51.80 $42.24 $ 34.72 25 $126.24 $100.04 $80.11 $64.75 $52.80 $ 43.39 30 $151.49 $120.05 $96.13 $77.70 $63.35 $ 52.07 35 $176.74 $140.06 $112.15 $90.65 $73.91 $ 60.75Maxim Group LLC 40
  • Omeros Corporation (OMER)Omeros Sum of the Parts LT Gr Discount Rate Yrs. to Mkt % Success Peak Sales MMs Term ValOMS 103HP "arthro" 1% 20% 3 50% $500 $2,632NPV $8.32OMS302 "opto" 1% 15% 2 75% $350 $2,500NPV $15.49OMS201 "uro" 1% 15% 5 20% $100 $714NPV $0.78PreClinical Pipeline 1% 20% 8 10% $500 $2,632NPV $0.67GPCR Platform 1% 20% 6 50% $150 $789NPV $1.44Other (s) 1% 20% 2 90% $0 $0NPV $0.00Net Margin 30%MM Shrs OS 27Total $27Source: Maxim estimates FUNDAMENTAL RISKSOmeros is an early-stage biotechnology company and, therefore, subject to a number of financialand development risks. We believe the key near-term risk investor’s face is the outcome of thecurrent Phase III trials that are evaluating the safety and efficacy of OMS302. Delays in trialresults and clinical efficacy that meet or exceed prior published results are key areas whereinvestors are focused. Longer term, risks include product commercialization and market forecasts,as well as the advancement of early stage PharmacoSurgery products and development of pre-clinical pipeline candidates forward.Development risk: Early in 2011, Omeros disclosed negative results for OMS103HP from twopivotal (Phase 3) trials in the ACL knee surgery setting. Variability in rater assessment (RA)appears to have led to uninterruptable results. The trials also took several years to enroll therequisite number of patients, which may have led to additional variability. Omeros previouslyreported strong data with OMS103HP in meniscectomy, and the program has now moved to apivotal stage.Regulatory risk: Like most biotechnology/pharma companies who develop new compounds,Omeros is bound to face FDA approval risks. The PharmacoSurgery program is novel and lacksclear precedent, which adds to the regulatory risk profile. However the components ofPharmacoSurgery are approved therapeutics. The current studies have shown a synergy that existsbetween the constituents of each product in the PharmacoSurgery platform, and that eithercomponent individually, or any permutation of the two component, does not generate theequivalent anti-inflammatory effect compared to the triple combination. The FDA may placeadditional data requirements for such combination drugs.Commercial risk: Omeros is developing new and novel pharmaceuticals for a wide range ofindications. Some represent an unmet medical need while others represent a clinicalimprovement. In today’s cost-conscious world of healthcare, it may be difficult to justify addedexpenses unless a clear benefit is shown.Generic substitution risk: Omeros’ leading programs (PharmacoSurgery platform) representscombinations of existing generic drugs, which is added to an irrigation solution. Although webelieve that surgeons would prefer not to take the risk of using a compounded version ofPharmacoSurgery, it is possible that some compounding pharmacies may decide to combine thesedrugs themselves.Maxim Group LLC 41
  • Omeros Corporation (OMER)Discovery risk. Omeros is engaged in drug development. In particular, the company has anactive GPCR discovery platform that utilizes high throughput screening of compounds in order toidentify ligands that bind GPCR (G-Protein Coupled Receptor) targets. While the company hasbeen successful in identifying candidate molecules, high throughput screening carries a risk thateven if the compounds are identified by the initial screen, they may not be suitablepharmaceutical agents for various reasons.Partnering: Omeros presently fully owns all of its programs, with the exception of the PDE7program, which was licensed from Asubio Pharma (Private, Not Rated). The company isexpected to partner some programs or compounds given the breadth of compounds currently indevelopment, as well as the cost of moving these compounds through clinical development.Additionally, partnerships may bring non-dilutive financing, which may be utilized for theadvancement of non-partnered programs. Omeros may not be successful in finding partners onfavorable terms or at all.Financing risk: Omeros is a development-stage pharmaceutical company with multiple programsin clinical development. The company presently does not generate revenue, beyond grantfunding, and may need capital to advance its clinical program and to launch the PharmacoSurgeryproduct if approved by the FDA. Omeros ended 2011 with ~$24MM on the balance sheet, and weestimate the company’s cash burn at $35 million this year.Maxim Group LLC 42
  • Omeros Corporation (OMER) Exhibit 43: Omeros (quarterly) Model: OMS302 U.S. OMS-302 (Cataract): Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 3.6 MLN "Cataracts" at baseline (-0.6 PL) : annual procedures (2012) 795,077 801,164 807,359 813,664 820,082 826,616 833,267 840,039 846,934 853,955 861,105 868,387 875,804 883,360 891,057 898,898 Market Size Growth - qtrly 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.9% 0.9% 0.9% 0.9% Market Share Penetration (302) 0.0% 4.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% 13.0% 14.0% 15.0% 16.0% 17.0% 18.0% 19.0% Number of Procedures 0 32,047 48,442 56,957 65,607 74,395 83,327 92,404 101,632 111,014 120,555 130,258 140,129 150,171 160,390 170,791 Units Per Procedure 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 Price per procedure $ 250 $ 250 $ 250 $ 250 $ 250 $ 250 $ 250 $ 250 $ 250 $ 250 $ 250 $ 250 $ 250 $ 250 $ 250 $ 250 Price Growth 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% U.S. QTRLY Sales ($) 0.0 8.0 12.1 14.2 16.4 18.6 20.8 23.1 25.4 27.8 30.1 32.6 35.0 37.5 40.1 42.7 % Growth (qtrly) 51% 18% 15% 13% 12% 11% 10% 9% 9% 8% 8% 7% 7% 6% U.S. OMS-302 (Premium Lens): Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 600k "premium lens replacement at baseline: (2012) 183,292 188,371 193,695 199,279 205,138 211,291 217,755 224,550 231,697 239,220 247,141 255,489 264,291 273,579 283,385 293,746 Market Size Growth - qtrly 2.7% 2.8% 2.8% 2.9% 2.9% 3.0% 3.1% 3.1% 3.2% 3.2% 3.3% 3.4% 3.4% 3.5% 3.6% 3.7% Market Share Penetration (302) 0.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 20.0% 22.0% 24.0% 26.0% 28.0% 30.0% 32.0% 34.0% Number of Procedures 0 7,535 11,622 15,942 20,514 25,355 30,486 35,928 46,339 52,628 59,314 66,427 74,002 82,074 90,683 99,874 Units Per Procedure 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 Price per procedure $ 250 $ 250 $ 250 $ 250 $ 250 $ 250 $ 250 $ 250 $ 250 $ 250 $ 250 $ 250 $ 250 $ 250 $ 250 $ 250 Price Growth 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% U.S. QTRLY Sales ($) 0.0 1.9 2.9 4.0 5.1 6.3 7.6 9.0 11.6 13.2 14.8 16.6 18.5 20.5 22.7 25.0 % Growth (qtrly) 54% 37% 29% 24% 20% 18% 29% 14% 13% 12% 11% 11% 10% 10% Western Europe (Cataract) Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 3.3 MLN "Cataracts at baseline: annual procedures (2012) 781,962 786,239 790,581 794,991 799,470 804,020 808,641 813,335 818,103 822,948 827,869 832,870 837,951 843,115 848,362 853,695 Market Size Growth - qtrly 0.5% 0.5% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% Market Share Penetration (302) 0.0% 0.0% 0.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% Number of Procedures 0 0 0 0 7,995 16,080 24,259 32,533 40,905 49,377 57,951 66,630 75,416 84,311 93,320 102,443 Units Per Procedure 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 Price per procedure $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 Price Growth 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Western Europe QTRLY Sales ($) 0.0 0.0 0.0 0.0 1.6 3.2 4.9 6.5 8.2 9.9 11.6 13.3 15.1 16.9 18.7 20.5 % Growth (qtrly) EU OMS-302 (Premium Lens): Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 300k "premium lens replacement at baseline: (2012) 96,032 99,183 102,470 105,900 109,479 113,217 117,122 121,201 125,464 129,922 134,584 139,462 144,567 149,912 155,510 161,375 Market Size Growth - qtrly 3.2% 3.3% 3.3% 3.3% 3.4% 3.4% 3.4% 3.5% 3.5% 3.6% 3.6% 3.6% 3.7% 3.7% 3.7% 3.8% Market Share Penetration (302) 0.0% 0.0% 0.0% 0.0% 2.0% 4.0% 6.0% 8.0% 12.0% 16.0% 20.0% 24.0% 26.0% 28.0% 30.0% 32.0% Number of Procedures 0 0 0 0 2,190 4,529 7,027 9,696 15,056 20,788 26,917 33,471 37,587 41,975 46,653 51,640 Units Per Procedure 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 Price per procedure $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 Price Growth 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% EU QTRLY Sales ($) 0.0 0.0 0.0 0.0 0.4 0.9 1.4 1.9 3.0 4.2 5.4 6.7 7.5 8.4 9.3 10.3 % Growth (qtrly) 107% 55% 38% 55% 38% 29% 24% 12% 12% 11% 11% International OMS-302 (Premium / Refractive Lense): Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 0.4 MLN "Refractive Lense" at baseline: annual procedures (2012) 108,371 109,466 110,572 111,688 112,816 113,956 115,107 116,269 117,444 118,630 119,828 121,038 122,261 123,496 124,743 126,003 Market Size Growth - qtrly 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Market Share Penetration (302) 0.0% 0.0% 0.0% 0.0% 0.0% 1.0% 2.0% 3.0% 4.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% Number of Procedures 0 0 0 0 0 1,140 2,302 3,488 4,698 7,118 8,388 9,683 11,003 12,350 13,722 15,120 Units Per Procedure 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 Price per procedure $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 Price Growth 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% International QTRLY Sales ($) 0.0 0.0 0.0 0.0 0.0 0.2 0.5 0.7 0.9 1.4 1.7 1.9 2.2 2.5 2.7 3.0 % Growth (qtrly) World Wide Cataract Revenues $ - $ 8 $ 12 $ 14 $ 18 $ 22 $ 26 $ 30 $ 34 $ 38 $ 42 $ 46 $ 50 $ 54 $ 59 $ 63 % Growth (qtrly) 51% 18% 26% 21% 18% 15% 13% 12% 11% 10% 9% 9% 8% 8% World Wide Opthalmic Revenues $ - $ 9.9 $ 15.0 $ 18.2 $ 23.1 $ 28.4 $ 33.8 $ 39.3 $ 46.1 $ 52.2 $ 58.2 $ 64.4 $ 70.8 $ 77.4 $ 84.2 $ 91.2 % Growth (qtrly) 52% 21% 27% 23% 19% 16% 17% 13% 12% 11% 10% 9% 9% 8% Total U.S. Opthalmic Revenues $ - $ 9.9 $ 15.0 $ 18.2 $ 21.5 $ 24.9 $ 28.5 $ 32.1 $ 37.0 $ 40.9 $ 45.0 $ 49.2 $ 53.5 $ 58.1 $ 62.8 $ 67.7 % Growth (qtrly) 52% 21% 18% 16% 14% 13% 15% 11% 10% 9% 9% 8% 8% 8% Total International Opthalmic Revenues $ - $ - $ - $ - $ 2 $ 3 $ 5 $ 7 $ 9 $ 11 $ 13 $ 15 $ 17 $ 19 $ 21 $ 24 % Growth (qtrly) Grand Total ALL Opthalmic Revenues $ - $ 10 $ 15 $ 18 $ 23 $ 28 $ 34 $ 39 $ 46 $ 52 $ 58 $ 64 $ 71 $ 77 $ 84 $ 91 % Growth (qtrly) 52% 21% 27% 23% 19% 16% 17% 13% 12% 11% 10% 9% 9% 8% Total U.S. Opthalmic Units Sold - 39,581 60,063 72,899 86,120 99,750 113,812 128,332 147,972 163,642 179,869 196,685 214,130 232,245 251,074 270,664 Average Price per Unit $ 250.0 $ 250.0 $ 250.0 $ 268.6 $ 284.5 $ 296.7 $ 306.1 $ 311.6 $ 319.0 $ 323.8 $ 327.6 $ 330.7 $ 333.2 $ 335.3 $ 336.9 Source: Omeros and MaximJason Kolbertjkolbert@maximgrp.com Maxim Group LLC 43
  • Omeros Corporation (OMER) Omeros Corporation Income Statements (In thousands, except per share data)Omeros, Inc. Income Statement ($ 000)OMER: YE Dec. 31 2007A 2008A 2009A 2010A 2011A 1Q12E 2Q12E 3Q12E 4Q12E 2012E 2013E 2014E 1Q15E 2Q15E 3Q15E 4Q15E 2015E 2016E 2017ERevenue (000s)Grant Revenue 1,923 1,170 1,444 2,105 4,524 250 250 250 250 1,000 500 500 125 125 125 125 500 500 500% ChgOMS-103 HP (Arthroscopy Indications: knee + other): WW - - - - - - - -% ChgOMS-302 (Occular Lense - cataracts & premium ) US , EU, ROW - - 43,136 23,129 28,382 33,765 39,287 124,563 220,992 323,565% Chg - -OMS-201 Urological Surgeries% Chg - -PreClinical GPCR Platform - Pipeline% Chg - -Total Product Sales 1,923 1,170 1,444 2,105 4524 250 250 250 250 1,000 500 43,636 23,254 28,507 33,890 39,412 125,063 221,492 324,065ExpensesCOGS - Assume 2% (high) and conservative - - - 5 5 5 20 10 873 465 570 678 788 2,501 4,430 6,481 COGS % Sales - 0% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2%R&D 15,922 17,850 16,929 23,465 23,718 5,750 5,750 5,750 5,750 23,000 26,450 27,244 7,015 7,015 7,015 7,015 28,061 28,060.81 28,061 R&D % Revs 23 23 23 2300% 2300% 5290% 62% 30% 25% 21% 18% 22% 13% 9%Sales & Marketing - - - - - - 25,000 7,500 7,500 7,500 7,500 30,000 33,000 36,300Sales & Marketing % 32% 26% 22% 19%G&A 10,398 7,845 5,273 8,746 8,216 3,000 3,000 3,000 3,000 12,000 12,000 13,000 3,500 3,500 3,500 3,500 14,000 15,000 16,000 G&A % Revs 1200% 1200% 1200% 1200% 1200% 2400% 30% 15% 12% 10% 9% 11% 7% 5%Stk Optns 1,494 1,900 2,090 575 575 575 575 2,299 2,345 2,392 610 610 610 610 2,440 2,489 2,538Non-GAAP, Adj. 1,494 - - - - - - - - - - - - - - - -Total expenses 26,320 25,695 22,202 32,211 31934 8,750 8,755 8,755 8,755 35,020 38,460 66,116 18,480 18,585 18,693 18,803 74,562 80,491 86,842Oper. Inc. (Loss) (24,397) (24,525) (20,758) (30,106) (27,410) (8,500) (8,505) (8,505) (8,505) (34,015) (37,960) (22,480) 4,774 9,921 15,197 20,609 50,501 141,001 237,223 Oper Margin NM NM NM NM NM NM NM NM NM NM 21% 35% 45% 52% 40% 64% 73%Investment Income 661 214 167 51 34 35 60 99 228 884 1,297 355 370 386 405 1,516 1,516 1,516Interest Expense (335) (2,202) (1,831) (1,884) - - - - - - - - - - - - - -Other Income (expense) 1,306 372 1,657 2,519 697 - - - - - - - - - - - - - -Pre-tax income (23,091) (23,827) (21,089) (29,251) (28546) (8,466) (8,470) (8,445) (8,406) (33,787) (37,076) (21,184) 5,129 10,291 15,584 21,014 52,017 142,518 238,740Pretax Margin NM NM NM NM NM NM NM NM NM NM 22% 36% 46% 53% 42% 64% 74%Taxes - - - - - - - - - 256 515 779 1,051 2,601 14,252 42,974Tax Rate - 0% 0% 0% 0% 0% 0% 0% 0% 0% 5% 5% 5% 5% 5% 10% 18%GAAP NI (23,091) (23,827) (21,089) (29,251) (28546) (8,466) (8,470) (8,445) (8,406) (33,787) (37,076) (21,184) 4,872 9,777 14,805 19,964 49,418 128,267 195,768Net Margin NM NM NM NM NM NM NM NM NM NM 21% 34% 44% 51% 40% 58% 60%GAAP-EPS (1.70) (1.67) (2.92) (1.37) (1.28) (0.38) (0.34) (0.28) (0.31) (1.31) (1.26) (0.70) 0.16 0.32 0.49 0.66 1.63 4.23 6.44Non GAAP EPS (dil) (2.71) (1.37) (1.28) (0.38) (0.34) (0.28) (0.31) (1.31) (1.26) (0.70) 0.16 0.32 0.49 0.66 1.63 4.23 6.44Wgtd Avg Shrs (Bas) - 000s 13,550 14,276 7,219 21,421 22,212 22,379 24,901 27,426 27,453 25,540 29,399 30,144 30,219 30,249 30,280 30,310 30,264 30,333 30,374Wgtd Avg Shrs (Dil) - 000s 13,550 14,276 7,219 21,421 22,212 22,379 24,901 29,926 27,453 25,540 29,399 30,144 30,219 30,249 30,280 30,310 30,264 30,333 30,374Source: Company reports and MaximSource: Company reports and Maxim Group LLC estimates.Jason Kolbertjkolbert@maximgrp.comMaxim Group LLC 44
  • Omeros Corporation (OMER)   Omeros Corporation Statements of Cash Flow (In thousands, except per share data)Omeros (OMER) Cash Flow Statement (000) 2009A 2010A 2011A 1Q12E 2Q12E 3Q12E 4Q12E 2012E 1Q13E 2Q13E 3Q13E 4Q13E 2013E 1Q14E 2Q14E 3Q14E 4Q14E 2014E 1Q15E 2Q15E 3Q15E 4Q15E 2015E 2016E 2017ECash flows from operating activities:Net income (loss) (21,089) (29,251) (28,546) (8,466) (16,937) (25,381) (33,787) (33,787) (9,345) (18,640) (27,885) (37,076) (37,076) (15,881) (22,055) (23,199) (21,184) (21,184) 4,872 14,649 29,454 49,418 49,418 128,267 195,768Adjustments to reconcile net loss to net cash (operating activities)Depreciation and amortization 451 472 435 113 226 339 452 452 118 235 353 470 470 122 245 367 489 489 127 254 382 509 509 529 550Stock Based Compensation 1,494 2,178 1,927 575 1,150 1,724 2,299 2,299 586 1,172 1,759 2,345 2,345 598 1,196 1,794 2,392 2,392 610 1,220 1,830 2,440 2,440 2,489 2,538Change in fair value of preferred stock warrant values and success fee liability (848)Non cash interest expense 253 174 352Loss on extinguishment of debt 296Loss on sale of investment securities 34 33Write-off of deferred public offering costsAcquired in process research and developmentOther than temporary im[pairment loss on investmentsChanges in operating assets and liabilities, net of effect from nura acquistion in 2006Grant and Other receivables (41) (1,231) 2,254PrePaid Expenses and other current and non-current assets 42 (87) (201)Deferred public offering costs - -Accounts payable and accrued expenses 207 1,462 339Deferred revenue 470 11,452 (2,228)Net Cash Used in Operating Activities (19,027) (14,502) (25,668) (7,779) (15,561) (23,318) (31,036) (31,036) (8,641) (17,232) (25,773) (34,260) (34,260) (15,161) (20,614) (21,038) (18,302) (18,302) 5,610 16,123 31,665 52,366 52,366 131,285 198,857Changes in assets and liabilities:Net Cash Used in Operating Activities (19,027) (14,502) (25,668) (7,779) (15,561) (23,318) (31,036) (31,036) (8,641) (17,232) (25,773) (34,260) (34,260) (15,161) (20,614) (21,038) (18,302) (18,302) 5,610 16,123 31,665 52,366 52,366 131,285 198,857Cash flows from investing activities:Purchase of property and equipment (279) (807) (1,241) (689) (1,378) (2,066) (2,755) (2,755) (696) (1,391) (2,087) (2,783) (2,783) (703) (1,405) (2,108) (2,811) (2,811) (710) (1,419) (2,129) (2,839) (2,839) (2,867) (2,896)Purchase of Patbios IP Assets (7,631)Reimbursement of Patbios IP assets 7,631Purchase of investments (64,207) (57,765) (9,000)Proceeds from the sale of investments 11,045 78,173 27,150 - - - - - - -Proceeds from the maturities of investments 1,039 323Cash paid for acquistion of nura, net of cash acquired of $87Net cash provided by investing activities (52,402) 19,924 16,909 (689) (1,378) (2,066) (2,755) (2,755) (696) (1,391) (2,087) (2,783) (2,783) (703) (1,405) (2,108) (2,811) (2,811) (710) (1,419) (2,129) (2,839) (2,839) (2,867) (2,896)Cash flows from financing activities:Proceeds from borrowings under note payable, net of loan origination costs - 9,742 9,942Payments on notes payable (4,120) (13,005) (1,051)Proceeds from issuance of common stock and exercise of stock options 61,840 299 595 - 26,485 54,322 54,640 54,640 350 34,221 34,643 35,087 35,087 490 1,005 1,546 2,114 2,114 628 1,287 1,981 2,709 2,709 3,472 4,449Proceeds from the repayment of related party notes receivableProceeds from issuance of convertible preferred stock, net of issuance costs 1,851Issuance of Series E convertible preferred stock for $5.00 per share concurrent with acquistion of nuraRepurchase of Series A convertible preferred stock and unvested common stock (48)Net cash provided by financing activities 59,523 (2,964) 9,486 - 26,485 54,322 54,640 54,640 350 34,221 34,643 35,087 35,087 490 1,005 1,546 2,114 2,114 628 1,287 1,981 2,709 2,709 3,472 4,449Net increase (decrease) in cash and cash equivalents (11,906) 2,458 727 (8,467) 9,546 28,938 20,848 20,848 (8,986) 15,597 6,783 (1,956) (1,956) (15,373) (21,015) (21,600) (18,999) (18,999) 5,527 15,991 31,517 52,237 52,237 131,890 200,410Cash paid for interest 1,947 820Vesting of early exercised stock options 5Cash and equivalents, beginning of period 12,726 820 3,278 4,005 4,005 4,005 4,005 4,005 24,853 24,853 24,853 24,853 24,853 22,897 22,897 22,897 22,897 22,897 3,899 3,899 3,899 3,899 3,899 56,135 188,025Cash and equivalents, end of period 820 3,278 4,005 (4,462) 13,551 32,943 24,853 24,853 15,867 40,451 31,636 22,897 22,897 7,524 1,882 1,297 3,899 3,899 9,426 19,890 35,415 56,135 56,135 188,025 388,435Source: Company reports and MaximJason Kolbertjkolbert@maximgrp.comSource: Company reports and Maxim Group LLC estimates.Maxim Group LLC 45
  • Omeros Corporation (OMER) Omeros Corporation Balance Sheet (In thousands, except per share data)Omeros, Inc. Balance Sheet ($000)Assets 2007A 2008A 2009A 2010A 1Q11A 2Q11A 3Q11A 4Q11A 2011 1Q12E 2Q12E 3Q12E 4Q12E 2012E 1Q13E 2Q13E 3Q13E 4Q13E 2013E 2014E 2015E 2016E 2017ECash and Cash Equivilents $5,925 $12,726 $820 $3,278 $3,921 $4,159 $4,888 $4,005 $4,005 ($4,462) $13,551 $32,943 $24,853 $24,853 $15,867 $40,451 $31,636 $22,897 $22,897 $3,899 $56,135 $188,025 $388,435Short Term Investments 18,157 7,256 59,485 38,715 39,715 32,715 27,965 20,565 20,565 20,565 20,565 20,565 20,565 20,565 20,565 20,565 20,565 20,565 20,565 20,565 20,565 20,565 20,565Grant & Other Receivables 190 207 248 1,479 1,295 2,460 776 876 876 876 876 876 876 876 876 876 876 876 876 876 876 876 876Prepaid Expenses 189 289 111 282 346 333 210 502 502 502 502 502 502 502 502 502 502 502 502 502 502 502 502Total current assets $24,461 $20,478 $60,664 $43,754 $45,277 $39,667 $33,839 $25,948 $25,948 $17,481 $35,494 $54,886 $46,796 $46,796 $37,810 $62,394 $53,579 $44,840 $44,840 $25,842 $78,078 $209,968 $410,378Deffered Offering Costs 1,462 - - - - - - - - - - - - - - - - - - - - - -PP&E, net 839 918 1,086 1,622 2,127 952 833 739 739 1,315 1,890 2,466 3,042 3,042 3,620 4,198 4,776 5,354 5,354 7,676 10,005 12,343 14,689Intangible Assets 164 60 - - - - - - - - - - - - - - - - - - - - -Restricted Cash 209 193 193 193 193 193 193 193 193 193 193 193 193 193 193 193 193 193 193 193 193 193 193Other Assets 27 32 119 135 156 136 119 102 102 102 102 102 102 102 102 102 102 102 102 102 102 102 102Total assets $27,162 $21,681 $62,062 $45,704 $47,753 $40,948 $34,984 $26,982 $26,982 $19,090 $37,680 $57,647 $50,133 $50,133 $41,725 $66,887 $58,650 $50,490 $50,490 $33,812 $88,379 $222,606 $425,362Liabilities:Accounts Payable 2,567 1,229 2,620 2,398 1,639 814 1,647 2,002 2,002 2,002 2,002 2,002 2,002 2,002 2,002 2,002 2,002 2,002 2,002 2,002 2,002 2,002 2,002Accrd Expenses and Other 2,296 3,764 2,837 5,067 3,899 3,018 2,611 5,340 5,340 5,340 5,340 5,340 5,340 5,340 5,340 5,340 5,340 5,340 5,340 5,340 5,340 5,340 5,340Preferrred Stock Warrant Liability 1,562 1,780 - - - - - - - - - - - - - - - - - - - -Deffered Revenue 500 232 702 8,014 7,283 6,788 6,282 5,748 5,748 5,748 5,748 5,748 5,748 5,748 5,748 5,748 5,748 5,748 5,748 5,748 5,748 5,748 5,748Current Portion of Notes Payable 1,010 16,556 4,931 395 2,202 3,719 5,275 5,895 5,895 5,895 5,895 5,895 5,895 5,895 5,895 5,895 5,895 5,895 5,895 5,895 5,895 5,895 5,895Total current liabilities $7,935 $23,561 $11,090 $15,874 $15,023 $14,339 $15,815 $18,985 $18,985 $18,985 $18,985 $18,985 $18,985 $18,985 $18,985 $18,985 $18,985 $18,985 $18,985 $18,985 $18,985 $18,985 $18,985Notes Payable Less Current Portion 118 7,827 9,360 18,058 16,594 15,092 13,551 13,551 13,551 13,551 13,551 13,551 13,551 13,551 13,551 13,551 13,551 13,551 13,551 13,551 13,551 13,551Convertible Preffered Stock 89,168 89,168 - - - - - - - - - - - - - - - - - - - - -Total liabilities $97,103 $112,847 $18,917 $25,234 $33,081 $30,933 $30,907 $32,536 $32,536 $32,536 $32,536 $32,536 $32,536 $32,536 $32,536 $32,536 $32,536 $32,536 $32,536 $32,536 $32,536 $32,536 $32,536Stockholders equity:Pfd Stk $0.001 ParC/S $0.001 Par 29 30 213 219 221 222 223 224 224 224 224 224 224 224 224 224 224 224 224 224 224 224 224Paid In Capital 3,466 6,150 161,227 167,838 168,580 169,213 169,786 170,355 170,355 170,930 197,989 226,401 227,294 227,294 228,230 262,687 263,696 264,726 264,726 269,232 274,381 280,341 287,328Accum. & Other Income (4) (99) 41 - - - - - - - - - - - - - - - - - - - -Accum. Deficit (73,432) (97,247) (118,336) (147,587) (154,129) (159,420) (165,932) (176,133) (176,133) (184,599) (193,070) (201,514) (209,920) (209,920) (219,265) (228,560) (237,805) (246,996) (246,996) (268,180) (218,762) (90,495) 105,274Total Equity (69,941) (91,166) 43,145 20,470 14,672 10,015 4,077 (5,554) (5,554) (13,446) 5,144 25,111 17,597 17,597 9,189 34,351 26,114 17,954 17,954 1,276 55,843 190,070 392,826Total Liab & Equity $27,162 $21,681 $62,062 $45,704 $47,753 $40,948 $34,984 $26,982 $26,982 $19,090 $37,680 $57,647 $50,133 $50,133 $41,725 $66,887 $58,650 $50,490 $50,490 $33,812 $88,379 $222,606 $425,362Shares Issd (000) 21,286 21,526 21,548 22,168 22,246 22,379 22,379 22,379 24,901 27,426 27,453 27,453 27,481 30,008 30,038 30,068 30,068 30,189 30,310 30,431 30,553Shares Out (000) - 21,286 21,526 21,548 22,168 22,246 22,379 22,379 22,379 24,901 29,926 27,453 27,453 27,481 30,008 30,038 30,068 30,068 30,189 30,310 30,431 30,553Treasury StockCommon Authzd 60,000 60,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000Source: Company reports and MaximSource: Company reports and Maxim Group LLC estimates.Jason Kolbertjkolbert@maximgrp.comMaxim Group LLC 46
  • Omeros Corporation (OMER) DISCLOSURES Maxim Group LLC Stock Rating System As of: 5/7/2012 % of Coverage % of Ratings Universe for which Firm provided Expected Performance* with Rating Banking Services in the last 12 months Buy Expected total return of 15% or more over next 12 months 67.0% 10.4% Hold Expected total return of plus or minus 14% over next 12 months 22.0% 4.5% Sell Expected total negative return of at least 15% over next 12 months 11.0% 0.0% * Relative to Nasdaq Composite. An Under Review (UR) rating represents a stock that the Firm has temporarily placed under review due to a material change. Maxim Group expects to receive or intends to seek compensation for investment banking services from Omeros Corporation in the next 3 months.I, Jason Kolbert, attest that the views expressed in this research report accurately reflect my personal viewsabout the subject security and issuer. Furthermore, no part of my compensation was, is, or will be directly orindirectly related to the specific recommendation or views expressed in this research report.The research analyst(s) primarily responsible for the preparation of this research report have receivedcompensation based upon various factors, including the firm’s total revenues, a portion of which is generatedby investment banking activities.Valuation Methods: Our 12-month price target is based on triangulation of three metrics which includeFCF, Discounted EPS and sum of the parts models.Price Target and Investment Risks: Aside from general market and other economic risks, risks particularto our price target and rating for Omeros Corporation include: 1) The ability to maintain favorablerelationships with suppliers and customers impacts the company; 2) Changes in federal or state legislation inregard to the use and procurement of allograft bone tissue could impair the company’s performance; 3)Legal proceedings arising from government regulations, class action litigation, or individual litigation couldnegatively impact bottom-line growth; 4) New business wins or client retention could be less than expected;5) Revenues, which are reliant on the collection and reimbursement from public and private insurers andnational health systems, could contract if budgetary cutbacks are implemented; 6) Increased pricecompetition could cause margins to contract; 7) Material weakness in its internal control systems couldadversely affect its ability to record, process, summarize and report certain financial data; and 8) If thecompany misses our revenue and EPS estimates and/or Street consensus during any given time period thestock price could be negatively impacted.Maxim Group LLC 47
  • Omeros Corporation (OMER) RISK RATINGSRisk ratings take into account both fundamental criteria and price volatility.Speculative –Fundamental Criteria: This is a risk rating assigned to early-stage companies with minimal to no revenues,lack of earnings, balance sheet concerns, and/or a short operating history. Accordingly, fundamental risk isexpected to be significantly above the industry.Price Volatility: Because of the inherent fundamental criteria of the companies falling within this riskcategory, the price volatility is expected to be significant with the possibility that the investment couldeventually be worthless.Speculative stocks may not be suitable for a significant class of individual investors.High –Fundamental Criteria: This is a risk rating assigned to companies having below-average revenue andearnings visibility, negative cash flow, and low market cap or public float. Accordingly, fundamental risk isexpected to be above the industry.Price volatility: The price volatility of companies falling within this category is expected to be above theindustry.High-risk stocks may not be suitable for a significant class of individual investors.Medium –Fundamental Criteria: This is a risk rating assigned to companies that may have average revenue andearnings visibility, positive cash flow, and is fairly liquid.Accordingly, both price volatility and fundamental risk are expected to approximate the industry average.Low –Fundamental Criteria: This is a risk rating assigned to companies that may have above-average revenue andearnings visibility, positive cash flow, and is fairly liquid.Accordingly, both price volatility and fundamental risk are expected to be below the industry.Maxim Group LLC 48
  • Omeros Corporation (OMER) DISCLAIMERSSome companies that Maxim Group LLC follows are emerging growth companies whose securities typicallyinvolve a higher degree of risk and more volatility than the securities of more established companies. Thesecurities discussed in Maxim Group LLC research reports may not be suitable for some investors. Investorsmust make their own determination as to the appropriateness of an investment in any securities referred toherein, based on their specific investment objectives, financial status and risk tolerance.This communication is neither an offer to sell nor a solicitation of an offer to buy any securities mentionedherein. This publication is confidential for the information of the addressee only and may not be reproducedin whole or in part, copies circulated, or disclosed to another party, without the prior written consent ofMaxim Group, LLC (“Maxim”).Information and opinions presented in this report have been obtained or derived from sources believed byMaxim to be reliable, but Maxim makes no representation as to their accuracy or completeness. Theaforementioned sentence does not apply to the disclosures required by NASD Rule 2711. Maxim accepts noliability for loss arising from the use of the material presented in this report, except that this exclusion ofliability does not apply to the extent that such liability arises under specific statutes or regulations applicableto Maxim. This report is not to be relied upon in substitution for the exercise of independent judgment.Maxim may have issued, and may in the future issue, other reports that are inconsistent with, and reachdifferent conclusions from, the information presented in this report. Those reports reflect the differentassumptions, views and analytical methods of the analysts who prepared them and Maxim is under noobligation to ensure that such other reports are brought to the attention of any recipient of this report.Past performance should not be taken as an indication or guarantee of future performance, and norepresentation or warranty, express or implied, is made regarding future performance. Information, opinionsand estimates contained in this report reflect a judgment at its original date of publication by Maxim and aresubject to change without notice. The price, value of and income from any of the securities mentioned in thisreport can fall as well as rise. The value of securities is subject to exchange rate fluctuation that may have apositive or adverse effect on the price or income of such securities. Investors in securities such as ADRs, thevalues of which are influenced by currency volatility, effectively assume this risk. Securities recommended,offered or sold by Maxim: (1) are not insured by the Federal Deposit Insurance Company; (2) are notdeposits or other obligations of any insured depository institution; and 3) are subject to investment risks,including the possible loss of principal invested. Indeed, in the case of some investments, the potential lossesmay exceed the amount of initial investment and, in such circumstances, you may be required to pay moremoney to support these losses. ADDITIONAL INFORMATION IS AVAILABLE UPON REQUESTMaxim Group LLC 49
  • EQUITY RESEARCH DEPARTMENT CAPITAL MARKETS / SYNDICATE Anthony Vendetti Christopher Fiore 212-895-3743 Director of Research 212-895-3802 President & Head of Capital Markets AEROSPACE & AIRLINES Paul LaRosa 212-895-3695 Ray Neidl 212-895-3571 Senior Managing Director - Chief Market Technician Andrew Rosen 212-895-3685 ALTERNATIVE ENERGY Senior Vice President Solar Power & LEDs Aaron Chew 212-895-3568 INSTITUTIONAL SALES & INSTITUTIONAL SALES TRADING CHINA Jamie Barker 212-895-3755 Echo Yinghui He Ph.D., M.D. 212-895-3718 Managing Director - Institutional Equity Sales & Sales Trading HEALTHCARE INSTITUTIONAL SALES 800-628-4005 Healthcare IT, Services & Medical Devices Anthony Vendetti 212-895-3802 Eric Brous 212-895-3635 Ian Burgess 212-895-3548 Healthcare & Life Sciences Ken Epstein 212-895-3872 Bryan Brokmeier, CFA 212-895-3845 Michael Fenton 212-895-3698 William Haynsworth 212-895-3639 Biotechnology Seitaro Kuno 212-895-3880 Jason Kolbert 212-895-3516 Tim Manning 212-895-3527 David Markel 212-895-3534 Biotechnology Erik Moquist 561-465-2496 Echo He Ph.D., M.D. 212-895-3718 Anthony Musto 212-895-3824 Gene Napolitano 212-895-3827 INDUSTRIALS & INFRASTRUCTURE Amanda Nozaki 212-895-3570 William D. Bremer 212-895-3835 Rodney Plasket 212-895-3615 Jason Sardo 212-895-3630 MEDIA Jeff Sklar 212-895-3780 John Tinker 212-895-3735 Dirk van Erp 925-954-1194 TECHNOLOGY Ashok Kumar, CFA 650-823-4745 INSTITUTIONAL SALES TRADING 800-628-4005 Research Associates Todd Bodine 212 895-3806 Benjamin Black 212-895-3509 Phil Buchanan 212-895-3746 Francesco Citro, Ph.D. 212-895-3809 Robert Benedickson 732-784-1903 Nirav Modi 212-895-3595 George Brown 212-895-3757 Victor Zajdel 212-895-3814 Adam Cheek 212-895-3878 Jon Huzarsky 212-895-3629 Supervisory Analyst/Research Assistant Peter Kaufman 561-465-2493 Nikki Reed 212-895-3736 Josh Levy 212-895-3897 Rich Levy 212-895-3820 Mitch Martin 212-895-3831 Mike Massimino 212-895-3544 Joseph Matura 212-895-3892 Dennis Natika 213 895-3758 Michael Pizzo 213 895-3643 Eugene Polt 732-784-1906 Alex Povalski 732-784-1904 Alessandro Profita 212-895-3795 Richard Reda 212-895-3849 Hany Sabet 650 587 8585 Clint Schoen 212-895-3893 Ed Shopkorn 212-895-3601 Brian Schroetter 732-784-1918 Kevin Schweitzer 516-396-3012 Gary Tritto 212-895-3842 Richard Vaughn 212-895-3676 Cass Waller 212-895-3740 Reed Werbit 212-895-3634 Energy Sector Specialist Eliecer Palacios 212-895-3608 Retail Sector Specialist Rick Snyder 212-895-3674 FIXED INCOME TRADING EQUITY TRADING Jamie Terranova 212-895-3875 Bill Vitale 732-784-1905 Jon Good 212 895 3607 Keith Arner 212-895-3891 Pierre Grant 212 895 3582 Ricardo Barquero 212-895-3781 Jon Kattouf 212-895-3573 Ralph Calabro 212-895-3586 Justin Rabinowitz 212-895-3839 William Doyle 212-895-3724 David Kamiya 212-895-3641 Robert Lynch 732-784-1910 Anthony Marciano 212-895-3613 Joseph Matura 212-895-3892 Frantisek Kovac 212-895-3606 Jared Rabinowitz 212 895 3729 Robert Sayegh 212-895-3680 GLOBAL EQUITY TRADING Bryan Tomasulo 212-895-3671 John Viteritti 212-895-3541 Bryan Chalk 804-441-6106 Charles Ferrera 212-895-3770 Tom Giordano 212 895-3837 Peter Murgolo 212-895-3612 John Palmieri 732-784-1929 Eric Skibo 212-895-3776 Jackson Platsky 212-895-3561 Chris Valvo 732-784-1916 Rory Gourlay 732-784-1936 INSTITUTIONAL OPTIONS TRADING Leonard Greenbaum 212-895-3791 WEALTH MANAGEMENT PRIME BROKERAGE John Garrity Kristi Marvin 212-895-3769 Executive Managing Director 212-895-3624 CORPORATE FINANCE Clifford A. Teller Director of Investment Banking 212-895-3773Maxim Group LLC 405 Lexington Avenue New York, NY 10174 – www.maximgrp.com