NEW YORK, Feb. 14, 2018 /PRNewswire/ -- FourWorld
Capital Management, LLC has published the results of an
in-depth analysis of biopharmaceutical company Omeros that
cast serious doubt on the financial viability of the company, owing
to a perfect storm of deteriorating revenue prospects and an
uncertain pipeline of new drugs, along with the loss of a key
legislative option propping up the price of its sole product.
FourWorld believes all regulatory and legislative options to
extend pass-through Medicare reimbursement status past January 1, 2018 for its only marketed product
have been singularly unsuccessful and are now no longer viable.
FourWorld forecasts a $400 million
funding shortfall and believes the fair value for Omeros common
stock is $4/share.
Blinded by reality: costly drug that may be a 'nice to have' but
not a 'need to have'
Seattle-based Omeros (Nasdaq:
OMER) markets a single patented and FDA-approved medication, called
Omidria, a cocktail of legacy generic pupil dilation and
pain relief drugs that can be used in cataract surgeries.
Medicare's pass-through reimbursement system has allowed Omeros to
charge providers up to $465 per dose
of Omidria, a gross price mark-up for a product whose ingredients
cost, as FourWorld understands, approximately $2.50 per dose and whose two-ingredient
alternatives, proven and easily obtainable since at least the
1950s, are priced at about $30 a
dose.
FourWorld lays out its concerns for the company in a new report
entitled Omeros Corporation: Far Less Than Meets the Eye. It
is available at fourworldcapital.com.
In its report, FourWorld notes that Medicare, describing Omidria
as a "nice-to-have" but not a "need-to-have" product, ended
"pass-through" reimbursement for the drug as of January 1. As a result, FourWorld expects Omeros
will be required to reduce the price of Omidria by up to 90%
to prevent a mass exodus to less expensive and, as FourWorld
reports, equally effective options.
Loss of the Medicare safety net and exposure of its sole
commercial product to potentially lethal competition has placed
Omeros in a triple bind: even as it plies providers with free
samples of Omidria to retain them as customers, channel checks
indicate that eye surgeons and wholesalers are cutting back on
their procurement of the drug now that the cost charged by Omeros
is no longer covered by taxpayers.
Simultaneously, FourWorld explains that Omeros has been
repurchasing, at full price, unused Omidria inventory from
customers. Additionally, the company's own OmidriaAssure program
pays providers the difference between their cost for Omidria and
patient insurance.
FourWorld's conclusion: it doesn't take 20/20 vision to
recognize that a financial model such as this is unsustainable.
Throughout 2017 Omeros affirmed its optimism that a
pass-through extension would be forthcoming. But reality may have
caught Omeros investors by surprise. The company has pinned its
hopes on two pieces of legislation – HR 4679 and HR 4683 – that
conceivably provided a path back to Medicare support for Omidria.
But the Bipartisan Budget Act of 2018 – signed into law on
February 9 – included 377 pages on
healthcare spending but nothing that extended reimbursement status.
FourWorld and its government affairs experts believe that this
omission essentially kills all hope for the two bills. FourWorld
notes that all of Omeros' assets are pledged as collateral under
its $125 million term loan agreement,
essentially leaving shareholders at the mercy of the performance of
Omidria.
Based on FourWorld's interviews with cataract surgeons, the
report says, "Omidria would need to reprice at a 90% discount to
start being of interest. We believe these cost cuts represent the
bare minimum cut to Omidria's price for OMER to have any chance of
defending its current market share."
The report goes on to forecast an 80% year-over-year revenue
decline for Omidria, given that "Omeros has exhausted all viable
regulatory and legislative options to extend reimbursement
status."
New York-based FourWorld
Capital is an SEC-registered investment advisor focusing on
event-driven investment opportunities. The firm was founded by
John Addis, formerly head of
Americas Equity Finance at Bank of America Merrill Lynch.
"Omeros markets a single commercial product that has little
clinical benefit which surgeons we've consulted are unwilling to
pay for," Mr. Addis said. "Loss of Medicare reimbursement has
removed the drug's financial lifeline the company's financial
underpinning."
He continued, "Investors should have a clear understanding that
Omeros is facing massive cash flow burn and resulting credit risk
under its term loan agreement. The situation might be arguably
brighter if there were viable therapies in the company's pipeline,
but our research indicates that the pipeline is highly uncertain,
pledged to creditors, and at best years away."
Too clear not to see: Omeros' shaky finances
As outlined by FourWorld's research, Omeros is subject to
challenging covenants and possible termination provisions
under its $125 million term loan
agreement. Owing to the loss of its Medicare support and lack of
viable therapies in the company's pipeline beyond this year, the
company is unlikely to ever again meet either its minimum revenue
or market cap tests, which are required to be met annually under
the terms of the loan agreement.
The company's debt capacity presents a formidable dilemma.
FourWorld's research shows that Omeros has $45 million in debt
capacity expiring on March 21, 2018.
If this debt is drawn in full, it puts further pressure on the
market cap test – if fully drawn, the minimum requirement under the
loan would be $800 million versus
Omeros closing market cap on Feb
9th of just above $600
million. If the debt remains undrawn, the capacity will
expire and Omeros will almost certainly need to seek liquidity
elsewhere, via either a large and dilutive equity offering or
additional debt.
According to FourWorld's report, Omeros disclosed to investors
that, irrespective of Congress's decision on Medicare pass-through
for Omidria, the company has, in its words, "incremental sources of
funds" to finance the business only until November 9. FourWorld's report continues: "Given
the covenants in the Term Loan, we believe there are few
incremental funds at its disposal, and the Company will be facing a
budget crisis in the face of collapsing OMIDRIA revenues and rising
operating expenses. The logical place to turn will be the capital
markets – which we believe equates to an imminent large equity
offering and likely multiple additional equity offerings over the
next 12 to 24 months."
"To address the near-term liquidity needs we forecast above,"
the report concludes, "we estimate that Omeros will need to do a
$150 million equity offering in the
very near future, with at least $90
million used to repay the [lender's] Loan and the remaining
$60 million, together with the
remaining cash on hand, to fund its operations for 2018. In
subsequent years, we believe Omeros will need to raise an
additional $100 million per year to
fund its operations until drugs in its pipeline either produce
material revenues or reach milestones that have significant
collateral value to justify a debt offering (e.g. full FDA
approval), which we estimate will not happen until 2022, if at all.
In total, we estimate that current investors could be looking at
approximately $400 million in capital
raising requirements over the next four years."
About FourWorld Capital
FourWorld Capital Management
LLC is an SEC-registered investment adviser based in New York. FourWorld focuses on event-driven
investment opportunities. For more, visit
www.fourworldcapital.com.
Following the publication of this report, FourWorld intends to
continue transacting in the securities covered herein. The firm may
be long, short, or neutral at any time hereafter regardless of its
initial recommendation.
Contact: Allan Ripp
212-262-7477 aripp@rippmedia.com
FourWorld Capital Management, LLC is a member of the Financial
Industry Regulatory Authority, CRD number 284138.
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SOURCE FourWorld Capital Management LLC