Biotech Makes the Grade After Game-Changing $340M Deal With Drug Giant
A huge licensing agreement with Novo Nordisk has pushed this small-cap name into the 'buy category.' Here's what to know how to play it.
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As I noted in my column on Friday, biotech is starting to see a bid. In that piece, I recommended sticking with biopharma/biotech names with approved products and solid balance sheets.
Today I want to highlight a name that, until recently, would not have qualified on either of those fronts. However, positive news this week has pushed Omeros Corp. (OMER) into the buy category. I took an initial position in the stock late Friday using covered call orders. Here's why.
Omeros is a saga I have followed for some time now. The company has been struggling to get its primary candidate Narsoplimab approved since its original marketing application was looking to get greenlighted back in late 2021. The stock has been extremely volatile as this long journey has played out, and the company has had to continue to raise new capital while pushing towards the finish line.
Because of the factors above, the stock has been an avoid for years. However, that appears to now be evolving in a rapid manner.
Narsoplimab looks on its way to finally being approved to treat hematopoietic stem cell transplant-associated thrombotic microangiopathy, or TA-TMA, at the tail end of this year. Omeros has filed a marketing application for the same indication in Europe. If all goes well, it should be green lighted on the continent in the first half of 2026. Narsoplimab, it should be noted, would be the first approved therapy in TA-TMA. The potential peak market projection I have seen is around $1 billion.
Omeros cleaned up its balance sheet a bit in the second quarter by reducing its near-term debt by just over $100 million. Then this past Wednesday, the company announced a huge licensing deal with European drug giant Novo Nordisk (NVO) around another asset in the Omeros’ pipeline. The stock more than doubled that day as this agreement solved Omeros cash flow issues, likely for good.
The licensing arrangement with Novo Nordisk garnered $340 million in upfront and near-term milestone payments for Omeros. The company can eventually achieve another up to $2.1 billion in developmental, regulatory and sales milestones as well as tiered royalties on commercialized sales. The asset involved in the deal demonstrated solid and encouraging Phase 2 trial results evaluating the compound to treat paroxysmal nocturnal hemoglobinuria, which is a rare blood disorder.
Not surprisingly, the stock sold off some 18% on Friday after its massive gains earlier in the week, which was partially due to a short squeeze. This leaves Omeros with a market capitalization of approximately $550 million.
The options against the equity have just decent liquidity. However, they are more than lucrative enough to make up for that. My covered call orders filled quickly late on Friday, it should be noted.
Option Strategy
This is how one can initiate a holding in OMER with a covered call order. As a reminder, covered-call orders involve buying an equity and simultaneously selling just out of the money call strikes against the new position.
Using the May $8 call strikes, fashion a covered call order with a net debit in the $5.20 to $5.60 a share range (net stock price - option premium).
This strategy provides downside protection of just over 30% and upside potential of nearly 50% even if this equity trades flat over the option duration.
At the time of publication, Jensen was long NVO and OMER.
