I am a bit neurotic about checking my stocks (I think I use StockTwits as much as Facebook). Not only do I check the stocks I’m currently invested in, I like to periodically check all stocks I’ve ever even thought about investing in. One of those stocks, Omeros (OMER), has nearly doubled recently from the price it was when I traded it months ago (it was a short term trade and small profit, whoops).
Rather than wallow in my hypothetical lost dollars, I thought I would explain why the stock jumped and whether it could still be a good buy.
Omeros is a pharmaceutical company focused on products to treat inflammation and disorders of the central nervous system. It’s a fairly new company, and therefore also very risky (that’s why I played it as a short term trade, I wanted to lock in my profits in case the stock collapsed). So why is the stock price up 49% over the past month?
In October, one of Omeros’ drugs, Omidria, was granted pass-through reimbursement status by the Centers for Medicare & Medicaid Services. Phew, that was a mouthful. Let’s break down the scary words now.
Omidria is a medication administered during cataract surgery. Pass-through status means that surgery centers can actually bill Medicare and Medicaid for the drug. As you might imagine, doctors don’t really want to use medicine that they can’t be reimbursed for (especially when one vial of the drug is $500), so this decision will pave the way for Omeros to start selling Omidria to doctors.
The fact that the medicine is eligible for Medicare reimbursement is especially key given that the typical demographic for cataract surgery is older individuals – many of them on Medicare. (Fun fact, thanks to Medicaid and Medicare, the government is the biggest health care insurer in the U.S.).
And since cataract surgery is a fairly common procedure, Omeros is thinking there will be a big market for their Omidria drug. Looks like shareholders are thinking the same thing, given the stock’s huge jump.
Now that we know why the stock jumped, let’s talk about whether it could be a good investment. I don’t think I will look at investing in it until the next quarter or two pass. For one, the Omidria drug isn’t even on the market yet. The pass-through status from Medicare and Medicaid goes into effect on Jan. 1, and the company plans to start selling the drug shortly after. I’d rather see a few quarters of how the drug performs than make a decision on its hypothetical performance.
On top of that, Omeros’ recent earnings report indicated that their recent financial situation may not be the most stable. For the past quarter, Omeros reported a net loss of $18.3 million. That wouldn’t be so concerning for a pre-revenue pharmaceutical company, except it’s a significantly bigger loss than the $13.9 million loss a year prior.
The majority of the additional spending this quarter went to preparing for the commercial launch of Omidria, which makes sense. But while that investment may pay off, if the drug sales don’t perform as expected, it was a lot of money down the drain.
For now, I’m happy about the stock’s success, but will play the waiting game for a few months before I make any investment decisions.