Omeros Corp (OMER) ® RAISING TARGET PRICE Elemer Piros, Ph.D. 212-430-1754 firstname.lastname@example.org LIFE SCIENCES Suy Anne Martins, M.D., Ph.D. 212-430-1778 email@example.comMarch 13, 2012 Market Outperform / Speculative Risk Pivotal Eye Data Achieved All Endpoints – Raising Target Price Raising Target PriceMARKET DATA Intraday - 3/13/2012 Today Omeros announced positive data from its Phase 3 clinical trialPrice $9.40 evaluating its combination drug OMS302 in patients undergoingExchange NASDAQTarget Price $16.00 intraocular lens replacement surgery. The study achieved its primary52 Wk Hi - Low $9.91 - $3.16 endpoint, which was the successful maintenance of pupil dilationMarket Cap(MM) $210.2 (mydriasis) in intraocular lens replacement surgeries, coupled withEV(MM) $197.7 reduction of postoperative pain (secondary endpoint). Therefore, we areShares Out (MM) 22.4 maintaining our Market Outperform rating and raising our Target PriceAvg. Daily Vol 64,534 from $13 to $16/sh on Omeros Corporation.Short Interest 55,769BALANCE SHEET METRICS Maintaining Pupil Dilation and Reducing PainCash (MM) $32.9 Today Omeros announced the results from a large 405-patient Phase 3LTD (MM) $20.0 study. OMS302 met its primary endpoint in maintaining pupil dilationTotal Debt/Capital NA (intraoperative mydriasis) compared to placebo during intraocular lensCash/Share $1.46 replacement surgery (p<0.00001). In addition, OMS302 also showedBook Value(MM) NABook Value/Share $0.18 statistical significance (p<0.00001) over placebo in reducing pain in the early postoperative period.EARNINGS DATA ($)FY - Dec 2009A 2010A 2011E OMS302 is a combination agent applied during eye surgery that causesQ1 (Mar) (1.87) (0.31) (0.30)AQ2 (Jun) (2.09) (0.36) (0.24)A pupil dilation and decreases inflammation. Patients were randomized 1:1Q3 (Sep) (0.27) (0.35) (0.29)A in this multicenter, double-blinded, vehicle-controlled Phase 3 trial toQ4 (Dec) (0.35) (0.34) (0.36) receive either OMS302 or placebo.Full Year EPS (2.92) (1.37) (1.18) The primary endpoint was maintenance of pupil dilation. A well-dilatedVALUATION METRICS pupil is imperative for a safe and successful surgery, as most of lensEV/Sales replacement procedures – in particular cataract surgeries – are performed behind the pupil. If the pupil fails to dilate properly (decreasingINDICES the surgeon’s operative field), there is an increased risk of complications.DJIA 12,994.4 OMS302 not only successfully maintained pupil dilation during surgery,SP-500 1,376.7 but also decreased pain in the postoperative period compared toNASDAQ 2,665.1 placebo. Both outcomes are clinically relevant for surgeons and patients.NBI 1,248.4 OMS302 was well tolerated, and the adverse event profile for the drug was similar to placebo. 1 Year Price History 10 8 Following Omeros’ recent meetings with U.S. and European regulators, 6 4 the company plans to begin enrolling patients in the second Phase 3 trial Q1 Q2 Q3 Q1 2 early in April 2012. Omeros is planning to submit marketing applications 2011 2012 3 in both the U.S. and Europe in 1H13. 2 1 0 Maintaining our Market Outperform with a $16/sh Target Price Created by BlueMatrix Given these positive results, we believe OMS302 could be widely used by eye surgeons. We value Omeros’ shares based on a universe of comparable companies. We believe that Omeros could be valued at par with the average of a comparable group of drug developers which trade at an enterprise value of approximately $291MM. To calculate the fair value of $12/sh to the late-stage assets, we assume 24MM shares outstanding and a cash position of ~$2MM by YE12. We also ascribe a value of $4/sh for additional early stage indications and the GPCR platform. Therefore, we are maintaining our Market Outperform and raising our Target Price to $16/sh for Omeros Corporation. For definitions and the distribution of analyst ratings, and other disclosures, please refer to pages 5 - 6 of this report.
Omeros Corp March 13, 2012 INVESTMENT THESIS Omeros Corporation is a pharmaceutical company with a diversified clinical-stage pipeline, and an extensive lead generating engine across multiple indications. The company’s lead platform is PharmacoSurgery™, which is a combination of existing generic drugs which are added to irrigation solution during surgical procedures. The components of PharmacoSurgery™ are designed to block different parts of the inflammation pathway, with the objective of minimizing overall inflammation associated with the trauma of the surgery and to improve recovery. One of the PharmacoSurgery™ candidates is OMS103HP, which is a combination of ketoprofen, amitriptyline, and oxymetazoline in development for arthroscopic procedures. The drug is dosed locally and only a negligible fraction is systemically absorbed. Omeros demonstrated in Phase 1 and Phase 2 studies that OMS103HP decreases inflammation and pain following the surgical procedure, and improves recovery. The drug appears to be well tolerated. The company announced results from two large Phase 3 studies of OMS103HP in ACL knee surgery. The trials were inconclusive. The company moved forward with OMS103HP into meniscectomy Phase 3 trials. The OMS103HP Phase 3 clinical program in meniscectomy would assess the drugs safety and efficacy in improving postoperative joint function and reducing pain following arthroscopic partial meniscectomy surgery. The program includes two randomized, double-blind, vehicle-controlled, multicenter trials conducted in North America and Europe. While the same irrigation solution had inconclusive results in the Anterior Cruciate Ligament (ACL) Phase 3 study, we have reasons to believe that it could be successful in the meniscectomy setting. In the ACL trial, patients were evaluated by raters comprised of physical therapists. There were imbalances observed amongst physical therapists, confounding the score results which became uninterpretable. The primary endpoint for the meniscectomy trials is the performance on the symptoms domain of the Knee Injury and Osteoarthritis Outcome Score (KOOS), a validated patient-reported outcomes measure already used in the successful Phase 2 meniscectomy trial. KOOS consists of five subscales: pain, other symptoms, function in daily living (ADL), function in sport and recreation and knee related quality of life. The primary endpoint would focus only in the “symptoms” relief reported by the patients. Omeros is also developing a PharmacoSurgery™ formulation for ophthalmologic indications (OMS302). Lens replacement surgeries (cataract and refractive lens exchange) are common ophthalmological surgical procedures. A usual problem during these surgeries is that the pupil starts to constrict, increasing the risk of complications. OMS302 is Omeros’ proprietary ophthalmologic PharmacoSurgery™ product which combines anti-inflammatory agents with an agent to dilate pupils. OMS302 is included in a standard irrigation solution used during the eye surgery. In a Phase 2b study evaluating OMS302 in eye surgery (221 patients), OMS302 successfully achieved the co-primary endpoints: maintaining pupil dilation and decreasing postoperative pain. As announced in March 2012, these results were confirmed in a pivotal Phase 3 trial. Following Omeros’ recent meetings with U.S. and European regulators, the company plans to begin enrolling patients in the second Phase 3 trial early in April 2012. Omeros is planning to submit marketing applications in both the U.S. and Europe in 1H13. In addition, on November 29, 2011, Omeros announced that it has submitted to the EMA a letter of intent to file its Paediatric Investigation Plan (PIP) for OMS302. A PIP is part of the EMA approval process and must be agreed prior to submission of a Marketing Authorization Application (MAA) for the drug in the European Union, unless the requirement is waived. Omeros has also created a high-throughput platform for the discovery of novel G Protein-Coupled Receptor (GPCR) modulators. GPCRs are one of the most important drug targets, with an estimated 40- 50% of all marketed drugs targeting GPCRs. While both industry and academia focused extensively on this field over the last 20 years, approximately 120 GPCRs remain without known modulators. Omeros’ technology enables efficient screening of these GPCRs and biological characterization of the discovered compounds, potentially generating a valuable pipeline of drug leads that may be licensed to partners and/or developed internally.RODMAN & RENSHAW EQUITY RESEARCH 2
Omeros Corp March 13, 2012 Omeros’ preclinical programs (MASP-2 inflammation, addiction, PDE7, PDE10) and in particular, the GPCR program, all have the potential to open a host of new therapeutic targets that can translate into significant license and future revenue opportunities for the company. Omeros now has a total of 33 unlocked orphan GPCRs in its portfolio. RISK ANALYSIS We ascribe a Speculative Risk rating to Omeros shares. In additional to development, marketing, and financial risks associated with emerging companies, specific additional risk factors to be considered are as follows: Development Risk In 1Q11 Omeros disclosed inconclusive results of OMS103HP from two well-controlled Phase 3 trials in the ACL knee surgery setting. Apparently, variability in rater assessment led to uninterpretable results. The trials took years to enroll the requisite number of patients. Omeros moved forward OMS103HP in meniscectomy setting, but investors may not place much value to the program until positive results are announced. Regulatory Risk Omeros is developing numerous compounds, all of which will require FDA approval prior to marketing. Some of the company’s programs, such as PharmacoSurgery™, do not have a clear precedent. Additionally, the components of PharmacoSurgery™ are themselves approved potent agents. In animal studies Omeros showed a synergy between all three constituents of PharmacoSurgery™, and that either component individually, or any permutation of the two component, does not generate the equivalent anti- inflammatory effect compared to the triple combination. The FDA may place additional data requirements for such combination drugs. Commercial Risk Omeros is developing pharmaceuticals for a wide range of indications. This includes novel indications, such as inflammation management during surgical procedure, to well-established indications, such as schizophrenia and Parkinson’s disease. Given the competitive nature of these markets, there is a commercial risk associated with the market adoption of Omeros’ drugs if they are approved. Generic Substitution Risk Omeros’ leading program, PharmacoSurgery™, is a combination of existing generic drugs, which is added to an irrigation solution. Although we believe that surgeons would prefer not to take the risk of using a compounded version of PharmacoSurgery™, it is possible that some compounding pharmacies may decide to combine these drugs themselves. Discovery Risk Omeros is engaged in high throughput screening of compounds in order to identify ligands that bind GPCR (G-Protein Coupled Receptor) targets. While the company has been successful in identifying candidate molecules, high throughput screening carries a risk that even if the compounds are identified by the initial screen, they may not be suitable pharmaceutical agents for various reasons. Partnering Omeros presently fully owns all of its programs, with the exception of the PDE7 program, which was licensed from Asubio Pharma (Private, Not Rated). The company will likely have to partner some programs or compounds given the breadth of compounds currently in development, as well as the cost of moving these compounds through clinical development. Additionally, partnership may bring non-dilutive financing which may be utilized for the advancement of non-partnered programs. Omeros may not be successful in finding partners on favorable terms or at all. Financing Risk Omeros is a development stage pharmaceutical company with multiple programs in clinical development. The company presently does not generate revenue, beyond grant funding, and may need capital toRODMAN & RENSHAW EQUITY RESEARCH 3
Omeros Corp March 13, 2012 advance its clinical program and to launch the PharmacoSurgery™ product if approved by the FDA. Omeros ended 3Q11 with ~$33MM on the balance sheet, and we estimate the company’s cash burn at ~$29MM over the next 12 months.RODMAN & RENSHAW EQUITY RESEARCH 4
Omeros Corp March 13, 2012 RODMAN & RENSHAW RATING SYSTEM: Rodman & Renshaw employs a three tier rating system for evaluating both the potential return and risk associated with owning common equity shares of rated firms. The expected return of any given equity is measured on a RELATIVE basis of other companies in the same sector, as defined by First Call. The price objective is calculated to estimate the potential movement in price a given equity could achieve given certain targets are met over a defined time horizon. Price objectives are subject to exogenous factors including industry events and market volatility. The risk assessment evaluates the company specific risk and accounts for the following factors, maturity of market, maturity of technology, maturity of firm, cash utilization, and valuation considerations. Potential factors contributing to risk: relatively undefined market, new technologies, immature firm, high cash burn rates, intrinsic value weighted toward future earnings or events. RETURN ASSESSMENT q Market Outperform (Buy): The common stock of the company is expected to outperform a passive index comprised of all the common stock of companies within the same sector, as defined by First Call. q Market Perform (Hold): The common stock of the company is expected to mimic the performance of a passive index comprised of all the common stock of companies within the same sector, as defined by First Call. q Market Underperform (Sell): The common stock of the company is expected to underperform a passive index comprised of all the common stock of companies within the same sector, as defined by First Call. RISK ASSESSMENT q Speculative - The common stock risk level is significantly greater than market risk. The stock price of these equities is exceptionally volatile. q Aggressive - The common stock risk level is materially higher than market level risk. The stock price is typically more volatile than the general market. q Moderate - The common stock is moderately risky, or equivalent to stock market risk. The stock price volatility is typically in-line with movements in the general market. Rating and Price Target History for: Omeros Corp (OMER) as of 03-12-2012 09/10/10 04/01/11 12/05/11 I:MO:$20 MP:NA MO:$13 10 8 6 4 2 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 2009 2010 2011 2012 Created by BlueMatrix RATING SUMMARY Distribution of Ratings Table IB Serv./Past 12 Mos Rating Count Percent Count Percent Market Outperform(MO) 96 61.10% 15 15.62% Market Perform(MP) 30 19.10% 3 10.00% Market Underperform(MU) 6 3.80% 0 0.00% Under Review(UR) 25 15.90% 4 16.00% Total 157 100% 22 100% Investment Banking Services include, but are not limited to, acting as a manager/co-manager in the underwriting or placement of securities, acting as financial advisor, and/or providing corporate finance or capital markets-related services to a company or one of itsRODMAN & RENSHAW EQUITY RESEARCH 5
Omeros Corp March 13, 2012 affiliates or subsidiaries within the past 12 months. ADDITIONAL DISCLOSURES Rodman & Renshaw, LLC. (the "Firm") is a member of FINRA and SIPC and a registered U.S. Broker-Dealer. ANALYST CERTIFICATION I, Elemer Piros, Ph.D., hereby certify that the views expressed in this research report accurately reflect my personal views about the subject company(ies) and its (their) securities. None of the research analysts or the research analysts household has a financial interest in the securities of Omeros Corp (including, without limitation, any option, right, warrant, future, long or short position). As of Feb 29 2012 neither the Firm nor its affiliates beneficially own 1% or more of any class of common equity securities of Omeros Corp. Neither the research analyst nor the Firm has any material conflict of interest with Omeros Corp, of which the research analyst knows or has reason to know at the time of publication of this research report. The research analyst principally responsible for preparation of the report does not receive compensation that is based upon any specific investment banking services or transaction but is compensated based on factors including total revenue and profitability of the Firm, a substantial portion of which is derived from investment banking services. The Firm or its affiliates did not receive compensation from Omeros Corp for any investment banking services within twelve months before, but intends to seek compensation from the companies mentioned in this report for investment banking services within three months, following publication of the research report. Neither the research analyst nor any member of the research analysts household nor the Firm serves as an officer, director or advisory board member of Omeros Corp. The Firm does make a market in Omeros Corp securities as of the date of this research report. Any opinions expressed herein are statements of our judgment as of the date of publication and are subject to change without notice. Reproduction without written permission is prohibited. The intraday prices of securities mentioned in this report are as of Mar 13 2012. Additional information is available to clients upon written request. For complete research report on Omeros Corp, please call (212) 356-0500. Readers are advised that this analysis report is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy. The information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of the available data. Past performance is no guarantee of future results.RODMAN & RENSHAW EQUITY RESEARCH 6