What happened

Shares of Omeros Corporation (OMER -2.92%) surged nearly 17% on Tuesday after the company announced that the U.S. Food and Drug Administration had granted its lead drug candidate breakthrough therapy designation. OMS721 is set to begin its second phase 3 trial later this year and is being evaluated as a potential treatment for Immunoglobulin A (IgA) nephropathy, a rare form of kidney disease. 

The classification was granted based on the drug candidate's phase 2 data, which included a 73% mean reduction in 24-hour urine protein levels after 12 weeks of treatment. The designation may allow OMS721 an easier path to marketing approval. As of 3:43 p.m. EDT, the stock had settled to a 15.8% gain.

A man on his laptop being showered in cash.

Image source: Getty Images.

So what

Omeros has one commercial product on the market today and a robust pipeline chock-full of potential. Omidria, which is approved for use during two different types of eye surgeries and procedures, has been steadily growing sales for the past several quarters. However, the company is heavily leveraged -- with a debt-to-assets ratio exceeding 100% -- and desperately needs to grow its way out from under its debt pile.

Omidria is slowly delivering, but investors are looking to the pipeline as well. OMS721 is the most advanced drug candidate, currently being evaluated in a phase 3 trial for atypical hemolytic uremic syndrome. In addition to awaiting the commencement of a phase 3 trial in IgA nephropathy, it recently concluded a phase 2 trial in hematopoietic stem cell transplant-associated TMA. 

Now what

The news today is being welcomed by investors for two simple reasons. First, breakthrough therapy designation is always a boon for drug development. Second, it offers the potential for Omeros to improve its financial position faster than what may be expected from "normal" regulatory pathways. The immediate impact is not significant, but it could end up lifting the company and its shareholders in the long term.