Omeros Deutsche Bank Research March 2011

North America 15 March 2011 -Omeros reported a Q4 loss per share of ($0.34) vs our est of ($0.71). The primary reason for the narrower loss was later-than-expected timing of the commercial infrastructure build-out to prepare for the launch of OMS103HP.

Excluding this item ($8M), our net loss per share est would have been ($0.35). The co ended Q4 with $42M in cash and short-term investments (up from $35M at the end of Q3). Taking into account the recent Vulcan and Patabios transactions, we estimate that operating cash burn in the quarter was approx $5M.

Of more importance than the quarterly financial results, OMER continues to expect to report pivotal data for OMS103HP in arthroscopic ACL surgery by the end of 1Q11. If positive, the company would be positioned to file an NDA in 2Q11. We continue to project FDA approval in 2012 for this lead product candidate, which we believe has peak sales potential of $500M+.Mgt also indicated that it is on track to report Ph 2b data in the coming weeks for its ophthalmology candidate OMS302 (cataract surgery) - its other pending PharmacoSurgery program

With funding in place from Vulcan and LSDF to support the GPCR program (see our 3Q10 earnings note published Nov 8, 2010), OMER is making progress in screening compounds for drug development. The company has now successfully “unlocked" five orphan GPCRs and plans to screen all of the Class A orphan GPCRs by mid-2012.

OMER's PharmacoSurgery platform (OMS103HP, OMS302, OMS201) is an innovative concept for improving surgical ease and/or patient outcomes. And, while we have not ascribed any value to the early stage biotech pipeline, the GPCR program, as well as OMER's preclinical CNS candidates could potentially yield relatively lucrative collaborations. Hence, based on the co's diverse clinical pipeline, as well as its very attractive valuation, we continue to rate OMER' shares Buy.

In our opinion, at an inexpensive $135M market capitalization (technology value of $103M), OMER's stock remains attractively priced, given its latestage PharmacoSurgery product portfolio. Our 12-mo price target is $13, based on 20x our fully-taxed 2013 EPS est, discounted at 30%. Key risks to our investment thesis and PT are primarily related to the clinical trial results and the regulatory pathway for OMER's PharmacoSurgery product candidates.