One Stock, 18 Ways to Make Big Money

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To be worth an investor's money, any promising pre-profit biotech needs to offer high scores on three fundamental benchmarks: pipeline depth, lead product quality, and cash-reserve to burn ratio.

Very few young pharma firms meet these qualifications, of course.

That's what makes a company like this so exciting…

How to Profit from Each of the "Sacred Catalysts"

A pharmaceutical pipeline consists of all the drugs a company currently has under development. Having a deep pipeline is like having depth on a football team – if your first-string player doesn't work out, you've always got a few backups to take his place. Likewise, if one drug doesn't make it to market, it's great to have another one right behind it to pick up the slack.

But unlike a lineup of bench players, every drug in a pipeline has five predictable chances to score in the game. Those opportunities are the five sacred catalysts the FDA stipulates every drug must go through to reach its ultimate goal: approval for marketing. They are:

  • Phase 2 clinical trials
  • Phase 3 clinical trials
  • New Drug Application (NDA)
  • FDA Advisory Committee review (AdCom)
  • FDA final review (Prescription Drug User Fee Act review, aka PDUFA)

There are other incidental events that can happen along the way and kick up share value – fast-track approval designation, for example – and not every drug goes through an AdCom, but the point is, every experimental drug in a company's pipeline will likely give you at least five opportunities to make money for each disease it treats.

That's why the pipeline at Omeros Corporation (Nasdaq: OMER) is so critical.

This Company's Deep Pipeline Is the Key

Omeros is on a mission.

Actually, it's on a number of missions…

The company has no fewer than six drugs in clinical development to treat seven diseases. Some have already moved up the regulatory gauntlet – the ladder of the sacred catalysts – but I'm still seeing 18 opportunities, at the very minimum, for an investor to watch his money soar.

The pipeline includes drugs to treat schizophrenia and Huntington's disease (the disease that killed folksinger Woody Guthrie), as well as opioid and nicotine addiction, and drugs that can actually limit the damage of various types of surgery before it ever happens!

And of course the pipeline will expand as the many pre-clinical (animal-tested) drugs this biotech is developing move into clinical (human tested) studies – meaning even more opportunities to make quick profits.

The pipeline, of course, is just the first reason this is one of the companies I'm watching so closely.

Quality Leads You Can Bank On

By far, the most important variable to consider when you're looking at a young biotech is the quality of its lead drug candidates. And you need ask only two questions in making that consideration: is the drug safe, and is it effective?

Omeros has an interesting and efficient way of approaching both questions: It leverages FDA-approved generic drugs into proprietary (patentable) formulations. This takes a lot of the guesswork out of drug development, especially where safety is concerned. If two ingredients have already been approved individually as safe, the only thing you have to prove is that using them together doesn't raise your risk for some unexpected side effect.

Proving effectiveness, of course, depends on the clinical endpoint you're trying to achieve, but if both are effective separately for a given indication, they'll probably be as effective or more so when used together.

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About the Author

Ernie Tremblay has over 20 years' experience studying and writing about the latest developments in health, medicine, and related technologies. He understands the FDA approval process, the "hard science" behind these drugs, and the market demand for them, better than almost anyone else on earth. He has mastered the complex dynamics that determine whether a new drug will be a breakthrough winner - or just another casualty of the FDA approval process.

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  1. SL | March 14, 2014

    Is that a coincidence? Dilutive new stock offering…

    http://finance.yahoo.com/news/omeros-prices-35-0-million-123300984.html

  2. Ernie Tremblay | March 14, 2014

    In the biotech sector, as I'm sure you're aware, it's not unusual for a firm to float a public offering after share price has gained significant strength, as OMER has over the past 3 months (up nearly 50%). In this case, it simply means that the company has chosen to go it alone in marketing (which it will have to finance) its new product rather than partner up with another firm. Historically, the rebound from this kind of dilution is pretty quick. Were I investing, I would see this as an opportunity to pick up a great stock at a bargain price.

  3. SL | March 15, 2014

    Thanks for the reply Ernie.
    Being in the ophthalmic field,I was intrigued by its lead product,Omidria,which is nothing really new: just a combination of a dilating drug(phenylephrine) and aNSAID(ketorolac)…While that removes most questions about safety,I don'think it leaved them much pricing room,as we are talking about 2 very cheap drugs…Of course,if they managed to make it most surgeons' choice,the sheer number of cataract operations,would produce some meaningful revenue,but the Ophthalmic space is dominated by traditional companies focused to every aspect of the field,namely Alcon(now a part of Novartis),Allergan and Abbott…Maybe one of them might be interested in some form of collaboration/partial buyout…

  4. Ernie Tremblay | March 18, 2014

    Great to hear from you! A couple of things to consider here. Omeros's business and drug development models predicate creating new proprietary formulations from current generic medications. In the case of Omidria, the drug has shown a clinically significant improvement of effect over current standard of care. Vivus used a similar model in creating Qsimia for weight loss (a combination of two common drugs, phentermine and topiramate). Although I wouldn't expect a big pharma company to buy out Omeros at this stage, it wouldn't surprise me to see a licensing/distribution deal take place, with milestone payments back to Omeros. By the way, as I'm writing this, OMER is at $12.38–about a 12% increase over the lowest price on Friday, when I recommended it.

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