Here's Why Omeros Corporation Is Getting Beaten Down on Wednesday

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What happened

Shares of Omeros Corporation (NASDAQ: OMER), a commercial-stage biotech, fell 19% in early-morning trading after getting criticized in a research report distributed to media outlets and analysts just ahead of the opening bell on Wednesday. The report doesn't tell us much that the company hasn't already disclosed, but the stock was still down 18.3% as of 12:03 p.m. EST.

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So what

The Centers for Medicare and Medicaid Services (CMS) had granted transitional pass-through reimbursement status for Omidria, which the company had expected would end at the beginning of 2018.

According to this morning's report, issued by investment advisor FourWorld Capital, the recently signed Bipartisan Budget Act of 2018 didn't include provisions that would have extended Omidria's pass-through status. As a result, the company's warning will probably come true. Instead of charging Medicare a few hundred dollars extra for Omidria, eye surgeons will probably need to absorb its cost into Medicare's $992.11 reimbursement rate for cataract surgeries this year.

Now what

Omidria helps reduce complications, but eye doctors can combine the two active ingredients on their own for a fraction of the cost. Finding a price that they're willing to pay for the convenience won't be easy. Investors will want to keep an eye open for the company's 2017 earnings report, a date for which hasn't been announced.

While Omidria isn't about to win any awards for innovation, Omeros is developing a novel antibody the FDA designated a breakthrough therapy for the treatment of IgA nephropathy, or Berger's disease, last summer. According to Omeros, the FDA will accept an application for OMS721 supported by a single phase 3 trial with 280 patients. The potentially fatal kidney disorder lacks effective treatments, which gives the candidate the possibility to generate more than $1 billion in annual sales if approved and successfully launched.

The candidate produced impressive responses in a handful of patients so far but hasn't proven itself against a placebo. If the product can repeat its performance in the larger trial, though, today's Omidria reimbursement issues will look like a minor speed bump in the rearview.

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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.