Did an iceberg just wallop into Omeros (OMER) stock? The drug maker’s shares are plunging at breakneck speed of almost 20%. The proximate cause of the sell-off was the company’s disclosure that it has raised $210 million in a debt offering.
Adding $210 million in cash from the debt offering will extend the company’s runway and buy it time to develop its pipeline. However, as the cash from the debt offering is used up and the debt stays put, the company’s balance sheet will need replenishing sooner than later.
On the other hand, Maxim analyst Jason McCarthy believes there appears to be some misunderstanding of the financing. McCarthy points out that the financing is actually positive for Omeros. Here’s why:
- Payoff existing debt, removes covenants and interest rate is cut in half (from ~12% on prior debt). New debt is unsecured, would no longer be tied to IP or assets.
- Protection against dilution. Convert initially $19.22 per share but with capped call transaction the ‘effective’ conversion price is $28.84. We believe the risk of dilution low.
- Operations funded for 2 years+ assuming Omidria returns to its $20M+ per quarter form. Positive signals already in 3Q18 with $4.6M in revenue as wholesaler’s stock up with pass-thru reinstated in 10/1. We expect significantly higher revenue in 4Q.
“Omeros continues to make progress with Omidria and OMS721, the latter is moving closer to filing for approval too. We believe the pressure on OMER shares related to the financing is an overreaction and sets up an attractive entry point,” the analyst concluded.
Net-net, McCarthy reiterates a Buy rating on Omeros stock, with a price target of $32, which implies an upside of 157% from current levels. (To watch McCarthy’s track record, click here)
This drug maker certainly has the Street divided. Based on 7 analysts polled by TipRanks in the last 3 months, 4 rate a Buy on Omeros stock, while 3 recommend a Hold. The 12-month average price target stands at $35, marking a nearly 180% upside from where the stock is currently trading.