OPKO – Seeking Alpha Makes a Case

Why so Much Love on the Inside?

OPKO Health Inc

Absolute Day Trader Picks has been watching OPKO Health Inc. for the better part of the past year and well into six months here on ADTP.

We have republished this amazing and comprehensive piece from Seeking Alpha  for our readers.  We also recommend  subscribing to Seeking Alpha alerts and newsletters as they offer great insight to help educate through the many contributions from their thought leaders.

OPKO Health Inc is on the verge of releasing some dynamic innovative and far reaching advances in the areas of diagnostic testing and pharma science.  Yes many insiders are scooping up this stock this piece does an impressive analytic breakout to take a look at why so many company insiders have such great confidence in the company.  After reading through the Seeking Alpha piece where do you come down?  OPKO Health has experienced a very exciting 2013 thus far – will they continue to trend upward for the remainder of 2013?

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To jump to the original on Seeking Alpha please click the link below:

http://seekingalpha.com/article/1796912-is-the-insider-love-for-opko-justified?source=email_rt_article_readmore

Insiders have purchased approximately 4.7 million shares of Opko in the last six months bringing total insider holdings to over 172 million shares. The analysis below investigates if this insider love for the company is justified by a detailed analysis of different market factors that affect its future value.

OPKO Health is a promising pharmaceuticals and diagnostics company, which has a wide portfolio of candidates and products, mostly acquired through investment and acquisition agreements. The diagnostic products of the company are close to commercial launch. Furthermore, the upcoming catalysts could further boost the stock prices of the company.

The Business

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OPKO Health Inc. (OPK) is a multinational pharmaceuticals and diagnostics company, with presence in U.S., Canada, Spain, Chile, Mexico, Brazil and Israel. The offices and facilities of the company are operating in leased spaces, except in Mexico and Brazil.

The company is involved in developing solutions for diagnosing, treating and preventing various conditions, including laboratory developed tests (LDTs), point-of-care tests, molecular diagnostic tests and proprietary vaccines and pharmaceuticals.

The company invests in early-stage companies, having significant potential, as part of its growth strategy. It has also acquired various companies, which accounted for over a 50% increase in the revenues from acquisitions, in the first half of 2013, as compared to the previous same period.

Subsidiaries of OPKO include OPKO Chile that is marketing and distributing a line of pharmaceuticals, topicals and nutraceuticals for various conditions; OPKO EU developing, manufacturing, marketing and selling a line of nutraceuticals, pharmaceuticals, and veterinary products in Europe; OPKO Mexico maintaining a line of nutraceutical, topicals and pharmaceuticals focused on ocular medicine; and OPKO FineTech manufacturing high value complex Active Pharmaceutical Ingredients (API).

The competitors of OPKO are Allergan Inc. (AGN), Ainylam Pharmaceuticals Inc., Novartis AG (NVS), Regeneron Pharmaceuticals Inc. (REGN), QLT Inc. (QLTI), Genentech Inc. and Merck & Co. Inc. (MRK)

Strategic Investments and Acquisitions

The company believes in strategic investments as part of its growth strategy. It has invested in a number of companies over the period of time. The recent investments include BioZone Pharmaceuticals Inc., ChromaDex Corporation, Cocrystal Discovery, Fabrus Inc., Neovasc Inc., Sorrento Therapeutics and TESARO.

OPKO has entered into a number of mergers and acquisition agreements with different related companies. These include Farmadiet Group Holding S.L., Prost-Data Inc., Silicon Comercio, Cytochroma, PROLOR Biotech Inc., OPKO Brazil, ALS Distribuidora Limitada, Fine Tech Pharmaceuticals Ltd., OURLab, Claros Diagnostics Inc., CURNA Inc., and 10% stake in Pharmsynthez.

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The acquisition of Cytochroma in March 2013, garnered two phase III products Rayaldy and Alpharen, both under development for kidney conditions. This agreement requires OPKO to make milestone payments of approximately $190 million in cash, which relate to development and annual revenue.

Diagnostic Systems

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The diagnostic segment of OPKO specializes in Point-of-Care system that is able to produce quality results in about ten minutes. It consists of disposable, micro-fluidic test cassette and a compact analyzer.

The tests under development are Prostate-specific antigen (Total PSA) test kit presently going through preparations for a commercial launch, point-of-care version of 4KScoreTM Prostate Cancer Test, Vitamin D Test, Testosterone Test and Alzheimer’s disease test.

The 4KScoreTM is touted to be able to predict accurate prostate cancer biopsies, and could lead to 50% decrease in unnecessary prostate biopsies. The test was licensed to International Health Technology Ltd. (IHT) to offer the kallikrein biomarkers in the laboratory setting. It was launched in Europe in December 2012 by IHT.

Candidates

The pharmaceutical candidates in the pipeline of OPKO include Rayaldy in Phase III, AlpharenTM Tablets (Fermagate Tablets) in phase III, LunacalcipolTM Injections and Capsules in phase II, Rolapitant (out-licensed to TESARO) in phase III, hGH-CTP in phase III for growth hormone deficiency, CTAP201 for SHPT in patients with CKD stage 5 in phase II, CTA091 for SHPT in patients with CKD stage 3-5 in preclinical phase and phosphate management technologies in preclinical phase.

Chronic Kidney Disease (CKD) is a growing ailment largely attributed to hypertension, obesity and diabetes. Thus it represents a rather significant market opportunity for OPKO.

RayaldyTM Capsules are being developed to treat secondary hyperparathyroidism (SHPT), which is associated with the deficiency of Vitamin D in patients with stage 3 to 4 chronic kidney disease (CKD). The phase II trial results demonstrated a decrease in the Vitamin D deficiency. The data was presented to the U.S. Food and Drug Administration, and phase III of the trial was initiated.

Rolapitant is out-licensed to TESARO for the development of potentially the best cancer support product. It is being developed for the prevention of chemotherapy induced nausea and vomiting (CINV) and post-operative induced nausea and vomiting (PONV).

The therapeutic trials underway includes the up-regulation of proteins through antagoNAT (Natural Antisense Transcripts) in preclinical phase for the treatment of orphan diseases which include Dravet syndrome (childhood on-set epilepsy), Rett syndrome (severe genetic disorder of nervous system), and MPS-1; protein based vaccines against influenza and viral infections; heparin derived oligosaccharide for asthma and chronic obstructive pulmonary disease (COPD); and preclinical SR-3306 worldwide rights acquired from The Scripps Research Institute for Parkinson’s disease.

Market Performance

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OPKO has outperformed the S&P by approximately 42% in terms of year to date share performance. The share performance of OPKO is 116% YTD as compared to the S&P’s 73.87% YTD.

The average price target set by the analysts for OPKO is $9.67, with a high target of $10 and a low target of $9. The mean recommendation for the shares is a strong buy.

The company has a very low earnings growth of -121.21% as compared to the Medical instrument industry rate of 2.09%. This implies that the company is performing substantially lower than the industry.
Upcoming Events

The earnings announcement date for OPKO of November 4, 2013 is a vital catalyst for the company. It will allow the investors and shareholders to make informed decisions regarding investment in the company.

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OPKO’s Spain subsidiary Pharmadiet S.L.U. recently obtained the commercialization approval from the health authority of Spain to market the oral and injectable formulations of citicoline used for treating memory disorder and behavior relating to head injury, stroke, chronic disease and degenerative brain disorders. The company will begin the commercialization of Citicoline in Spain, in the first quarter of 2014. This will not only prove as a catalyst but will also generate increased sales for the company.

OPKO has agreed to invest in Zebra Biologics Inc., a private biotechnology company discovering and developing bio-superior antibody therapeutics and complex drug targets. Confirmatory news of this acquisition may prove as a major catalyst for the stock prices of the company in the near future.

The results of the phase III clinical trials of Rolapitant are also expected in the second half of 2013. The testing went through three global studies, where one study involved about 24,000 patients. This imminent catalyst is expected to give a boost to the stock prices of the company.

The phase III candidate Rayaldy of OPKO is estimated to complete the clinical trials by March 2014. This may have a major impact on the company, since the impact of Vitamin D on the risk of cancer, Heart Disease and Stroke is being studied under grant in Harvard University. If the results are viable for the prevention of the above mentioned ailments, the market for Vitamin D would expand, hence providing an opportunity to OPKO.
The further development of phase III trials of Alpharen will begin in the second quarter of 2014. And the phase IIb trials for Lunacalcipol are also expected to begin on the same population in 2014. These are important catalysts for the company.

The company is expected to make a commercial launch of Total PSA test in 2013. It’s expected that the launch will occur towards the end of this year. The projected launch of Vitamin D test is in the first quarter of 2014 in Europe and in fourth quarter of 2014 in U.S.A.

Fundamentals and Potential Risks

The company has cash and equivalents of $169.1 million as of June 30, 2013, which is insufficient for a company pursuing research and development. The company’s revenue however, tripled in the first half of 2013 as compared to the same period of 2012. This was assisted by the sale of assets of RNA interference of OPKO Health to Rxi Pharmaceuticals. Furthermore, the analysts have estimated a 110.80% sales growth for the year ending 2013 for OPKO. These estimates present a favorable outlook for the company.

The net loss for the second quarter of 2013 was also lower as compared to that of the same period of 2012. Along with that the company has a very strong liquidity position despite its debts, with a quick ratio of 3.22.

A potential risk for OPKO is the milestone payment it has agreed to make as part of the Cytochroma acquisition, as and when they become due. In case the company doesn’t have sufficient cash at the time of payment it may have to raise additional funds, which may be through dilution. This could prove to be detrimental for the stock of the company.

Failure in obtaining and enforcing patent protection for OPKO’s products would have serious negative implications on the company. Similarly, if the third parties don’t respect the license agreements and exploit OPKO’s proprietary technology, the company would be subjected to potential harm.

Bottom-line

OPKO is a company which has fared well through the year 2013, and seen positive oscillation in its share prices. The company has acquired many profitable companies and has presently enough cash to cover its activities.

The diagnostic test and diverse pharmaceutical candidates of the company are promising and successful approval and commercialization of the products may take the company to new heights. The phase III candidates Rolapitant, Rayaldy and Fermagate have shown positive results in their phase II studies, and have the potential for further success. Similarly, the diagnostic tests of prostate cancer awaiting commercial launch and approvals are also a bright prospect for the company.

The company has some potential risks, which include its net losses over the years and negative earnings growth. The company also has low cash when assessed over its expanded operations, and may pose a problem in the future. However, it has the potential and steady stream of revenue from present and future anticipated sales, which may prove beneficial for the company

ABOUT OPKO HEALTH, INC.

OPKO is a multinational biopharmaceutical and diagnostics company that seeks to establish industry leading positions in large, rapidly growing markets by leveraging its discovery, development and commercialization expertise and novel and proprietary technologies. For more information, visit http://www.opko.com.

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