Opko health: (OPK: $9.85)
Four Wall Street analysts that specialize in Biotech say buy Opko. Two out of the four in fact say it is a double from current levels. Why all the excitement?
Opko Health is a diversified Healthcare company on the cusp of what we expect to be a healthy growth cycle, driven by several promising product launches across its pharma, biologics, and diagnostics businesses. The company is well-funded with $155 million of cash and $55 million of debt. The recent acquisition of Bio-Reference Labs, the third largest clinical laboratory in the US, will support uptake of the company’s diagnostics platform and add a valuable genetics testing franchise. Consensus calls for a gradual ramp of Opko’s near term launch opportunities, expecting the pipeline to drive significant long term growth, which results in the current valuation, offering an attractive entry point. Â
One of Opko’s key upcoming trials is for Rayaldee, a drug to treat kidney disease. It could be a blockbuster for the company, opening up a market of 9 million Americans. The company expects to receive approval in time for a 4Q16 launch date. The company has taken steps to prepare for ramping the product’s revenue upon approval. For example, some contract manufacturing issues were recently identified and addressed. Moreover, the company has recently made a few key leadership hires.
What is Rayaldee? Why is it successful? The drug addresses secondary hyperparathyroidism that is due to vitamin D insufficiency in patients diagnosed with stage 3 or stage 4 chronic kidney disease. When patients suffer from vitamin D insufficiency, excessive amounts of parathyroid hormone are secreted. If that hormone remains too high for too long, it can lead to calcium and phosphorous being released from bone. In addition to weakening bones, the situation can lead to the calcification of vascular tissue and renal tissue that can be life threatening. Between 40% and 60% of stage 3 and stage 4 chronic kidney disease patients are affected by this condition. In trials, patients taking Rayaldee achieved at least 30% reductions in plasma intact parathyroid hormone versus placebo, and Vitamin D insufficiency was corrected in more than 80% of the patients. By comparison, less than 7% of people who received a placebo saw their vitamin D insufficiency corrected.
Opko has put into place pre-launch marketing activities for Rayaldee, with expansion of the commercialization team underway, which includes 5 regional business managers, 10 internal reps, and 35 regional reps. Headcount for the sales force could eventually reach 70–80.
While the Street is bullish over Rayaldee’s prospects, it is important to discuss that Opko is not a one trick pony. The company has a full pipeline of other promising opportunities, including 4Kscore.
4kscore provides men with an accurate and personalized measure of their risk for prostate cancer. The 4Kscore can be used prior to biopsy, or after a negative biopsy, and can predict the likelihood of cancer spreading to other parts of the body in the next 20 years. The market’s reception to the product is well-regarded. In fact, Opko recently said that more than 5,000 physicians have prescribed 4Kscore tests and 5,300 procedures were conducted in June alone compared to 4,600 in April.
One lever of upside for 4kscore is obtaining reimbursement approval, as this would open up the purse strings for the end market to spend more. However, in order to qualify for reimbursement, 4kscore must pass tests issued by Medicare. Novitas Solutions, representing the local Medicare coverage in New Jersey, recently did not pass 4kscore due to conflicting determinations. This highlights how Opko is still in the early life cycle of 4kscore and having to work through various kinks to straighten out the business plan. Opko believes after further discussions with Novitas and additional review of the data, that Novitas will soon approve 4kscore for reimbursement later this year. The company is working on other approvals expected soon.
Some of the other promising opportunities in front of Opko include (i) the launch/ramp of Lagova which addresses growth hormone deficiency; (ii) the integration of the Bio Reference Labs acquisition; (iii) the closing of the $60 million Transition Therapeutics acquisition in 3Q16; (iv) the receipt of expected results of three other studies regarding promising new drugs in 4Q16. We will be keeping a close eye on all of these catalysts going forward and updating you accordingly.
BMR Take: Very simple story. Lots of favorable Wall Street ratings. Blockbuster new drug scheduled to hit soon. Strong balance sheet. Deep product pipeline. Strong value at this price level. Not without risk.