Could This Biopharma Stock Be A 10-Bagger?
Many Americans are optimistic about achieving a comfortable retirement. They fund their 401(k) or IRA in hopes of accumulating a nest egg that has the potential of providing enough income for the rest of their lives.
Unfortunately, too many Americans invest too conservatively to accomplish their goals. This is especially true for investors under the age of 40 — who face the prospects of a future much different than their parents and grandparents due primarily to Social Security’s bleak future.
#-ad_banner-#This was confirmed in a study conducted by Wells Fargo that found 59% of Americans focus more on avoiding losses than trying to maximize gains. And it’s not just young workers who invest too conservatively, either. The study showed that investors in every demographic group prefer minimizing losses to growing their balances. Now, this strategy is fine for older workers nearing retirement age, but it’s contraindicated for those with longer time horizons.
Now, for the average investor, pursuing returns in a passive low-cost index fund is an acceptable way to invest for the long term. But that doesn’t mean that 100% of an investor’s funds should be invested this way. Investors should put a portion of their savings into more speculative investments – investments with the potential to return many times their initial investment.
And lest you think that finding the next Microsoft (Nasdaq: MSFT) is impossible in today’s environment, let me assure you, it isn’t. There are plenty of potential “10-baggers” available for investors to purchase today.
One such company is Omeros Corporation (Nasdaq: OMER). The company is a small-cap biopharma headquartered in Seattle, Washington. The company develops small-molecule and protein therapeutics for application against inflammation, coagulopathies, and disorders of the central nervous system.
Now, this is not a stock for investors seeking safety. The stock is volatile — just as you might expect for a company developing cutting-edge drug therapies.
But if you can stomach the volatility, OMER is a company that has the potential to deliver substantial profits over the next decade and longer. And now is a good time to consider grabbing a few shares of this company.
You see, share prices dipped a few weeks ago on fears that Medicare wouldn’t renew reimbursements for its Omeros’ drug, Omidria. Omidria helps maintain pupil size in cataract surgeries or intraocular replacements. The recent omnibus bill eliminated those fears, and the stock is back on track to move higher.
This is an important development because the continued sales and profits generated by Omidria are needed to power research into Omeros’ new drug — OMS721. Researchers at the University of Leicester discovered mannan-binding lectin-associated serine protease-2 (MASP-2). MASP-2 is a protein involved in activation of the immune system and plays a role in the inflammatory response. It is activated after tissue damage from trauma or infection. OMS721 has great potential to treat patients with lectin pathway activation.
OMS721 is in Phase II and Phase III trials with four different potential uses. The FDA granted breakthrough therapy designation to OMS721 for treatment on patients with high-risk hematopoietic stem cell transplant-associated thrombotic microangiopathy. This rare but deadly condition damages the smallest blood vessels inside many of the body’s vital organs – most commonly the kidneys.
Coincident to this designation, OMS721 also received breakthrough status for Berger’s Disease (IgA nephropathy), a kidney disease caused when Immunoglobulin A lodges in the kidneys. Two other treatments for OMS721 are looking at other kidney problems associated with atypical hemolytic uremic syndrome and lupus nephritis.
What all this means is that OMS721 is highly likely to deliver blockbuster revenues for years to come — if approved. And that’s enough to kick this stock into the stratosphere. On the other hand, the stock could tank if the clinical trials don’t pan out as expected. And should that happen, expect to see about 75% of its value evaporate overnight.
Now, like most explosive growth stocks, Omeros has no earnings, so traditional fundamental analysis won’t help determine a fair value for OMER. That’s not to say we can’t look at the company’s financials, though.
Last year, the company reported sales of $64.8 million — a 55% increase over the previous period. Losses from operations totaled $44 million in 2017 — a decrease of 19% against 2016. On a per share basis, the company lost $1.17 against $1.65 in 2016.
And while there is reason to expect to see additional improvement in the fundamentals in 2018, that’s not a certainty. But that’s the nature of these kinds of stocks. The company will release its 1Q2018 results on May 10, 2018 — so we’ll get another taste of volatility then. But for long-term investors, Omeros has a potential cure for lackluster returns.
Risks To Consider: Omeros is a small cap biopharma stock that is subject to wild volatility as it proceeds through the FDA approval process. And should the company be unsuccessful in getting its drugs approved, or if the FDA wants more data, the stock could experience an existential crisis for lack of access to capital.
Action To Take: Buy shares up to $20. Mitigate risk by limiting your exposure to OMER of no more than 2% of your risk capital. This stock is speculative, and as such, is not suitable for short-term needs. Expect to hold the stock for at least 5-10 years. And during that time, expect greater than average volatility. It is not recommended to use a stop loss on this stock due to its volatility. Should the stock break out in the future, place a 25% trailing stop on your position.
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