OMEROS 8.27.2014
Shares: Total 34M / Short 6M/ 22 days to cover according to average volume
Enterprise value: 448M / 889x sales
MACD: slightly bearish and crossing over to bullish
Negatives: Competition is deep for OMER even with their proprietary High-throughput screening process for drug discovery; there are a lot of bio-tech companies that could bring similar drugs to market. Astra-Zeneca has teamed up with another company for instance in this field.
OMER debt to capital is high but it appears they have plenty of access to capital. Debt and or equity offering isn’t out of the question in the next year going forward to pay for future inventory for their recently approved drug, which should start adding to rev Q4. An offering is more likely to occur if it is accompanied by a swift increase in the stock price. An approval for this drug in the EU, which is pending, would also add rev and decrease the likely hood of this occurring. There is also risk involved with the bio-tech sector as a whole.
Positive: The team seems dedicated to unlocking more GPCR’s which opens up the window to wide drug development. Wall Street could price this equity according to the addressable market which covers a large % of variety of drugs. A portion of revenue is from research grants.
Considering the competitive market Omeros is in, which everyone claims to have the proprietary technique that is the most effective, a buyout possibility exist considering the relatively small market cap. The momentum of the biotech industry may outweigh the risk in this case. OMER already has a pipeline built up and is adding to it. Expect momentum to drive this stock in either direction due to large institutional ownership. An upward bias is intact due to a recent rally and short interest rising slightly.
In summary: The research I done leads me to believe that OMER should be bought when: OMER follows the market sideways to lower with no news. OMER rises more than 2% in one day. New drug approvals, especially those already pending. If equity is issued in light of good news, weakness should be bought. OMER should be sold when: OMER follows the market down more than 8% in one day. OMER decides to issue debt instead of equity. Cash-flow remains negative first 1/2 fiscal 2015 or doesn’t improve dramatically. OMER exceeds 23.00 with no buy-out. Harvey’s Fair value today: 1/2B USD which suggest 11% more upside at current price. B-