OMEROS(NASDAQ: OMER)

THE AYES HAVE IT FOR THIS SMALL OCULAR CONCERNThis week’s free report is around an attractive investment opportunity in a small biotech company with one approved product and multiple “shots on goal”. If the company continues to execute, the shares could have substantial upside over the next 12-24 months.

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COMPANY OVERVIEW

Omeros Corporation (OMER), is a Seattle based biopharmaceutical company focused on developing and commercializing small-molecule and protein therapeutics, and orphan indications targeting inflammation, coagulopathies, and disorders of the central nervous system.

Omeros is known for developing products which are uniquely administered throughout the duration of surgery directly to the surgical site to preemptively provide clinical benefits (e.g. reduce inflammation and pain) both during and after the procedure. Omeros has a market capitalization of approximately $400 million and is currently selling at around $11 per share.

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PIPELINE

Omeros is heavily focused on driving higher sales and expanding into new markets this year for one FDA approved product Omidria.

The Company also has a diverse pipeline with several shots on goal in various phases including one candidate in phase III trials, four in phase II trials, and several pre-clinical candidates with multiple patents filed, large potential markets, and the likelihood of generating additional spinoff products.

Omeros has retained rights to its products with the exception of OMS103 which has been licensed to another company and is generating revenue. Here is a quick rundown of the product and pipeline portfolio.

OMIDRIA is used during cataract or intraocular lens replacement surgery to improve patient outcomes.

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Phase / Status / Expected Launch: OMIDRIA was approved by FDA and started generating revenues in the U.S. market in April 2015. There are firm plans to launch the product in the Middle East in 2H 2016 and seeking a distribution partner to launch in EU in 2H 2016.

Expected Market: OMIDRIA’s Q1 revenues for this product were $7.2 million. More than 1.5 million cataract surgeries and about 3.8 million intraocular lens replacement procedures are projected to be performed in the U.S. annually. About 22 million annual intraocular lens replacement procedures are projected worldwide. Omeros expects the number of these procedures to grow annually by 3-4%.

Omeros signed an agreement with ITROM to begin selling Omidria in the Middle East in 2016, which has 500,000 cataract surgeries a year.

EU expansion will be a larger market. The company plans to sign one or two partnerships but has provided no specific timeline. It could impact stock value positively in the near future if the EU partner is large and established and/or milestone payments are significant.

Other Considerations: ⦿ Omeros has retained full market rights. ⦿ Sales are increasing due 11 new sales agents hired and Precision Lens making sales calls in square states. ⦿ Omeros is pursuing a Patent infringement lawsuit against competitor PAR Pharmaceutical for this product.

Key Differentiator(s): What makes OMIDRIA special is that it is a unique proprietary combination of a pupil-dilating agent and a non-steroidal anti-inflammatory agent that is added to irrigation solution and administered during surgery, before inflammation and other problems occur. OMIDRIA is the only FDA-approved product for intraocular use that prevents intraoperative miosis and reduces postoperative pain.

PIPELINE#4

PDE10 (OMS824) OMS201 PPARy (OMS405)

MASP – 2 (Mannan-binding lectin-associated serine protease-2, aka OMS721), is a novel pro-inflammatory protein which targets Lectin Pathway Immune Disorders such as atypical hemolytic uremic syndrome, thrombotic microangiopathies (TMAs), IgA nephropathy, and other renal diseases.

Key Differentiator(s): MASP - 2 is potentially safer and more effective than Alexion’s (ALXN) Soliris. MASP - 2 can be administered subcutaneously whereas Soliris is delivered intravenously. Omeros believes this product will develop first-in-class treatments for a wide range of acute and chronic inflammatory disease states and autoimmune disorders.

Phase / Status / Expected Launch: MASP - 2 is currently in Phase III clinical trials for the treatment of atypical hemolytic uremic syndrome; and is in Phase II clinical trials for the treatment of thrombotic microangiopathies (TMAs), IgA nephropathy, and other renal diseases.

If the Phase II trial is positive, Omeron intends to request accelerated approval / breakthrough therapy status from the FDA to start a phase III program that meets accelerated approval requirements. MASP - 2 has received Orphan Drug Designation from the FDA for prevention of complement-mediated TMAs and Fast Track Designation from the FDA for the treatment atypical hemolytic uremic syndrome (aHUS).Expected Market: atypical hemolytic-uremic syndrome impacts about 64,000, stroke impacts 700,000, and renal disease more than 20 million Americans per year. MASP – 2 is likely to compete for the existing $2.6 billion Soliris market.

MASP — 2#5

GPRC

OMS201 is another therapy used during surgery to improve patient outcomes. This product candidate is used during urological procedures including ureteroscopy for removal of ureteral or renal stones.

OMS201 is a proprietary combination of ketoprofen, an anti-inflammatory API, and nifedipine, a smooth muscle relaxant API.

Key Differentiator(s): Product is administered during surgery, before inflammation and other problems occur. Leverages components which are generic, FDA-approved drugs that have been marketed in the U.S. for more than 20 years, have well-known safety and pharmacologic profiles, and have been individually prescribed to manage the symptoms of ureteral and renal stones.

Phase / Status / Expected Launch: In Phase I/II clinical trials.

Expected Market: In 2013, 49 million cases of kidney stones occurred globally.

OMS201#6

PPARy (OMS405) is designed for opioid and nicotine addiction.Phase / Status / Expected Launch: Is in Phase III clinical trials. Other Considerations: ⦿ Phase II trial results do not look promising⦿ No cost risk – Phase II trial is being run by a separate organization (NY State Psychiatric Institute).

Additionally, Omeros is pursuing the following PRE-CLINICAL THERAPIES which do not yet have plans to move into clinical trials but may prove profitable over a longer time frame;

⦿ GPR17 for Demyelinating disorders⦿ GPR101 for appetite and eating disorders ⦿ GPR151 for treating neuropathic pain and cognition⦿ GPR161 for triple-negative breast cancer treatment⦿ GPR174 for dysfunction of regulatory T-cell modulation⦿ GPR183 for the treatment of osteoporosis and EBV-related diseases

PPARy (OMS405)

PRE-CLINICAL THERAPIES are all expected to advance

to clinical trials in 2017

GPCR (G Protein-Coupled Receptor) Platform, called the “Cellular Redistribution Assay (CRA) is being touted by Omeros as a high-throughput drug discovery platform for orphan G Protein-Coupled Receptors (GPCRs) in order to target unmet needs; particularly related to metabolic and cardiovascular indications, oncology, and CNS disorders.

Key Differentiator(s): Omeros believes that there is no other existing high-throughput technology able to “unlock” orphan GPCRs and that their efforts could lead to the development of oral medications for many conditions.

Omeros has announced that it has identified and confirmed sets of compounds that interact selectively with the orphan receptors identified in the table below.

Patent Position - As of February 28, 2015, Omeros owns five issued patents, 16 pending patent applications in the U.S., as well as 43 issued patents and eight pending patent applications in foreign markets related to previously unknown links between specific molecular targets in the brain and a series of CNS disorders, their CRA and other research tools used in the GPCR program and to orphan GPCRs and other GPCRs for which we have identified functionally interacting compounds using our CRA.

Phase / Status / Expected Launch: In Pre-clinical efforts, Omeros is actively attempting to optimize compounds against several orphan GPCRs including: GPR17, linked to myelin formation; GPR101, linked to appetite and eating disorders; GPR151, linked to neuropathic pain and cognition; GPR161, which is associated with triple negative breast cancer; GPR183, linked to osteoporosis and to Epstein-Barr virus infections and related diseases; and GPR174, which appears to be involved in the modulation of regulatory T cells important in autoimmune disease, such as multiple sclerosis, and in cancer and organ transplantation. No specific 2017 clinical trials are currently expected. This platform could potentially be fertile ground for future clinical trials.

GPCR

OMEROS (NASDAQ: OMER)

GPCR Metabolic & Cardiovascular IndicationsGPCR Oncology IndicationsGPR12 Obesity, Cognitive ImpairmentsGPR19 Melanoma, Lung CancerGPR21 Obesity, DiabetesGPR20 Gastro-Intestinal Stromal Tumors, Acute Myeloid LeukemiaGPR22 Cardiovascular Diseases, AnxietyGPR65 Renal Cell Carcinoma, Ovarian Cancer, InflammationGPR25 Arterial StiffnessGPR68 Ovarian Cancer, Prostate Cancer, OsteoporosisGPR37L1 HypertensionGPR80 Hepatocellular CarcinomaGPR39 DiabetesGPR87 Squamous Cell CarcinomaGPR50 Metabolic DisordersGPR150 Ovarian CancerGPR61 Eating DisordersGPR161 Breast Cancer, Congenital Cataracts & Birth DefectsGPR82 Appetite, Body WeightGPR174 Melanoma, Grave’s DiseaseGPR101 Eating DisordersLGR4 Cancer Stem Cells, Bone DiseasesGPR132 AtherosclerosisLGR5 Cancer Stem Cells, Esophageal AdenocarcinomaGPR146 Dyslipidemia, DiabetesP2Y8 Leukemias, LymphomasGPR171 Eating Disorders  GPR176 Atherosclerosis

SREB1/GPR27 Diabetes, SchizophreniaGPCR CNS IndicationsGPCR Miscellaneous IndicationsGPR17 Myelin Disorders, Multiple SclerosisGPR15 HIV Enteropathy, Rheumatoid ArthritisGPR31 Anxiety DisordersGPR32 Acute Inflammatory ResponsesGPR37 Parkinson’s DiseaseGPR83 Autoimmune Diseases, PTSDGPR52 SchizophreniaGPR183 Humoral ImmunityGPR63 AutismCCRL2 Rheumatoid ArthritisGPR78 Bipolar Disorder, SchizophreniaLGR6 Hair Follicle Stem Cells, Wound RepairGPR139 Motor Disorders GPCRs with Unknown IndicationsGPR151 Cognition, Mood Disorders, PainGPR45 GPR182GPR135 MRGFGPR141 OPN5GPR162  GPR153 SchizophreniaMAS1 Cognitive ImpairmentsMRGE PainOPN4 Circadian Rhythm, Sleep DisordersSREB2/GPR85 Schizophrenia, ObesitySREB3/GPR173 Schizophrenia, Obesity

Finally, Omeros’ proprietary Antibody Platform is used for the discovery of novel, high-affinity monoclonal antibodies utilizing a chicken B-cell lymphoma cell line and is targeting therapies for Metabolic, CV, Oncologic, Musculoskeletal & other disorders.

Key Differentiator(s): The Company believes their platform offers several clinical advantages over other antibody platforms which will enable them to deliver quicker results and product novel antibodies against difficult targets, such as highly homologous proteins, enzymes, and receptors with short extracellular domains. Patent Position - As of March 8, 2016, we owned and/or held worldwide exclusive license rights from the UW to four issued patents and four pending patent applications in the U.S., and three issued patents and 14 pending patent applications in foreign markets related to this platform.

Phase / Status / Expected Launch: PRE-CLINICAL but has generated antibodies to several clinically significant targets and our platform continues to add to our pipeline

Balance Sheet:As of the May 10, 2016 quarterly report, OMIDRIA sales had increased by 65% in Q2 over Q1 and are projected to continue expanding due to increased sales staff as well as goals to expand into the Middle East and EU markets in the second half of 2016. Current net sales of OMIDRIA are around $12 million per quarter and growing while quarterly costs were almost $27 million (including 4.7 million of non-cash expenses).

As of March 31, 2016, the company had cash on hand of $13.2 million and in mid-May, Omeros received a cash infusion of $20 Million from Oxford Finance through acceleration of an existing debt facility.

Based primarily on increasing OMIDRIA sales, the company still expects to be cash flow positive later this year, and fully funding its pipeline. Also, should a hoped for new distribution partnership for OMIDRIA in the EU fall into place, it may yield additional cash in the form of upfront payment.

BALANCE SHEET

OUTLOOK AND RECOMMENDATION

Outlook: Three analysts in the last 3 months averaged a price target of $39.00 with a high estimate of $75 and a low estimate of $21. WBB Securities reiterated their buy rating and $75.00 price target in a research report sent to investors on Tuesday June 14, 2016.

Cantor Fitzgerald started coverage on Omeros in a research report on Thursday, June 2nd. They set a buy rating and a $21.00 target price on the stock and indicated “cash flows from its recently launched eye drug Omidria could fuel its pipeline for years to come.”

There is reasonable consensus opinion that Omeros will hit its sales targets sufficiently to have sufficient funding to pursue its pipeline as planned. Though it’s too soon to tell for some products, the Company has several promising product paths teed up for the long run.

Given rapid sales increases for OMIDRIA, a large and diverse pipeline as well as possible upcoming catalysts such as finding/signing a distribution partner in Europe; one has to like the risk/reward profile of Omeros at its current trading levels.

Recommendation: Buy OMER up to $14 a share

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