Opko Health Inc (OPK)

[tomsylver]

OPKO's Prostate Cancer Hit ( http://www.forbes.com/sites/genemarcial/2015/07/23/opkos-prostate-cancer-hit/ )
Gene Marcial ( http://www.forbes.com/sites/genemarcial/ )
7/23/2015

There was a time not too many years ago when biotech was a dirty word on Wall Street. Not anymore. Now Investors are constantly on the watch for new opportunities in the healthcare sector, most particularly among the fast-moving biotechs or biopharmaceuticals. They have become one of the stock market’s fiery groups.

In fact, some young biotechs have discovered and in some cases successfully developed important treatments or technologies that have thus far escaped the major drug makers. One such company is young and little known OPKO Health (OPK), a New York Stock Exchange listed company with a market cap of $7.1 billion. In December it announced a partnership with Pfizer (PFE) on one of its products. OPKO is a diversified biopharmaceutical and diagnostics developing therapies in endocrinology and renal associated diseases, as well as molecular diagnostic tests in prostate cancer and other diseases.

Last month OPKO agreed to acquire Bio-Reference Labs (BRLI), the third largest U.S. full-service clinical diagnostic lab used by hospitals, long-term care facilities, physicians’ offices, and government units. With Bio-Reference’s annual revenues of $832.3 million, the deal will transform OPKO from a small biopharma with miniscule revenue into a leader in the lab-testing services market.

“The acquisition is part of our plan of continuously moving forward with our proprietary therapeutics drug-discovery and diagnostics services strategy,” says Dr. Philip Frost, OPKO’s chairman and CEO. It will transform the company in important ways and greatly improve its financials, including the generation of strong cash flow, he adds.

“Bio-Reference presents OPKO with the ability to leverage BRLI’s marketing, sales and distribution resources to push sales of its 4Kscore, a blood test that provides details of a patient’s risk of contracting aggressive prostate cancer,” says Jeremy Butler, analyst at investment research firm Value Line in a recent report. Among the added benefits from the deal, which is expected to close this year, is “BRLI’s excellent relationship with healthcare payers” that should “augur well in payment negotiations for testing services,” says Butler, such as the 4Kscore.

He recommends OPKO as a buy with a price target range of $20-$30 a share. The stock, currently trading at about $16 a share, has climbed from $9 since this column reported OPKO’s partnership with Pfizer in December 2014.

OPKO’s 4Kscore diagnostic test was validated in 2014 in a prospective, blinded study of 1,012 men in collaboration with 26 urology centers across the U.S. Results showed that the 4Kscore test was highly accurate in predicting the presence of high-grade cancer prior to prostate biopsy. Estimates are one million prostate biopsies are performed each year in the U.S. Pre-screening with the 4Kscore test will drastically reduce the number of prostate biopsies, with total annual savings of about $1.5 billion to the U.S. healthcare system. Over 900 U.S. urologists have used the 4Kscore test in routine practice.

On June 26, 2015, 4Kscore was included in the National Comprehensive Cancer Network (NCCN) guidelines for early detection of prostate cancer. NCCN’s inclusion of OPKO’s 4score test in the guidelines is a significant step towards demonstrating medical necessity and securing reimbursement coverage from private payers, notes Kevin De Geeter, analyst at investment firm Ladenburg Thalmann. He rates OPKO a buy with a price target of $20 a share.

He says in a recent note to clients that “pharmacoeconomic data” suggests that the 4Kscore test “sharply reduces the rate of false positives associated with PSA screening and potential to reduce the number of unnecessary biopsies.”

European Urology, the official journal of the European Association of Urology, noted in its October 2014 edition that the 4Kscore test is “unique in that it provides an individualized prediction of clinically relevant prostate cancer for each patient.”

The list price of 4Kscore test is $1,185, with the U.S. market estimated at one million tests a year and the international projected to be an additional 1.5 million. So OPKO estimates the total annual market opportunity to $3.5 million.

Larry Feinberg, managing partner at Oracle Partners which owns some 5 million OPKO shares, credits Dr. Frost and his management team with a “stellar track record of building shareholder value through a combination of organic growth and smart acquisitions.” He says he has witnessed Dr. Frost’s series of successes in the industry and points out that he has guided OPKO in continuing to find new products. “He knows the industry well and knows how to create value,” adds Feinberg.

“I have been an early investor in OPKO and started investing when it was at about $4 a share. And as a long-term investor, I haven’t sold a share as the stock remains undervalued,” says Feinberg. “The stock is just starting to click.”

The active short-sellers in the stock don’t worry Feinberg. “Good luck to those who think there’s money to be made betting against Dr. Frost, who is one of the most successful leaders in the industry,” he says.

With the BRLI acquisition, Feinberg estimates that 4Kscore has the potential of producing annual sales of $500 million to $1 billion, and generating cash flow next year of $75 million to $100 million. OPKO received last December a $295 million upfront payment from Pfizer as part of a long-term agreement for the commercialization of Lagova hGH-CTP, aimed at treating growth hormone deficiency in adults and children. OPKO will also receive $275 million more upon achieving regulatory milestones.

Michael Petusky, analyst at Barrington Research, says in a recent note to clients that the BRLI acquisition “holds the promise of being truly transformative over time – in addition to driving higher revenue and profitability in the near to intermediate term.” Petusky, who rates OPKO as “outperform,” has raised his price target to $21 a share from $19.

https://opkodd.files.wordpress.com/2015/07/gene-marcial.jpeg
Gene Marcial, who wrote the market-moving column "Inside Wall Street" at BusinessWeek for more than 25 years, has started writing a new column at Forbes.com in 2011. His new column, called "Street Beat," will maintains Mr. Marcial's trademark theme of providing readers with behind-the-scenes investment opportunities. Through the column, he provides an experienced insight into stock investing and perspective on Wall Street activity.

Mr. Marcial talks with professional investment managers, analysts, and big investors to find stocks on the cusp of breaking out — say, because of the launch of a potentially hot product, likely approval of a promising new drug, or perception of a big leap in earnings growth. His sources may simply think the stock of a company is dirt cheap and ready for a takeover.

Prior to joining BusinessWeek, Mr. Marcial was a columnist at The Wall Street Journal, where he wrote the "Heard on the Street" and "Abreast of the Market" for seven years. After leaving BusinessWeek on Dec. 30, 2009, he moved the "Inside Wall Street" column to AOL's DailyFinance.com until April 15, 2011, when he started writing for Forbes. He is the acclaimed author of Gene Marcial's 7 Commandments of Stock Investing (FT Press, 2008), and Secrets of the Street, The Dark Side of Making Money (McGraw-Hill, 1995).

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Jeremy Butler Issue Chief at Value Line Investment Survey at Value Line Inc.
Value Line - An uncontested authority in reliable, unbiased financial information since 1931 — Value Line Institutional products and services paint detailed pictures of the most significant movements and market trends in the finance industry. There has been an evolution in the delivery of our research to your customers, from the original print survey to our intuitive and customizable online reports. Our research looks toward the past to provide detailed historical data, the present to offer the most up-to-date and in-depth information, and the future to apply our expert analysis to forecast upcoming challenges and opportunities – essentially, we provide the investor with the whole picture.

Kevin DeGeeter is a director at Ladenburg Thalmann & Co. Inc.
He is responsible for equity research coverage of personalized medicine and medical device companies with market capitalizations between $50 million and $5 billion. His coverage focuses on molecular diagnostics and medical equipment used in oncology, cardiovascular disease and infectious disease, as well as related research markets. Prior to joining Ladenburg Thalmann he was an analyst at Oppenheimer & Co., with responsibility for small-cap molecular diagnostic and biotechnology stocks. He has 10 years of buyside and sellside research experience, including positions with J. P. Morgan, PaineWebber, Natexis Bleichroeder and Manning & Napier Advisors. DeGeeter received a bachelor's degree in economics from Colgate University.

Larry Feinberg*, managing partner at Oracle Partners
Oracle Investment Management, Inc. (OIM) is a fundamental research driven investment management company that is exclusively focused on the global health care and bioscience industries. The firm was founded by Larry N. Feinberg in 1993. Mr. Feinberg has been a leading investor and securities analyst in the health care industry for over 30 years.

The current Health Care industry is characterized by rapid and disrupting changes driven by innovation and regulation. Besides the passage of Health Reform legislation, demand for health care is also accelerating as the population of the developed world ages. At 17% of GDP, health care spending in the United States is more than 4 times greater than the amount spent on national defense. These forces provide opportunities for both long and short investing, based on our fundamental security selection process.

Background*
Mr. Larry Neil Feinberg serves as the President at Oracle Investment Management, Inc. Mr. Feinberg founded the firm in 1993. He is a Managing Partner at Oracle Partners, L.P. Mr. Feinberg founded the firm in 1993. He has been serving as the Founder, Chairman, and Director of Oracle Healthcare Acquisition Corp. since September 2005. Mr. Feinberg serves as the Managing Partner at Oracle Partners, L.L.C. He is the President at Oracle Associates, LLC. Mr. Feinberg was a Principal at Odyssey Partners, L.P. from 1989 to 1993, where he directed the firm's private and public healthcare investing activities. Mr. Feinberg served as a Senior Vice President at Dean Witter Reynolds, Inc., where he had begun working as a Healthcare Research Analyst in 1980. From 1986 to 1987 Mr. Feinberg was the First Vice President of the healthcare group of Drexel Burnham Lambert, Inc. He was elected to the Institutional Investor All-American Research Team for seven consecutive years from 1982 to 1988. Mr. Feinberg served as a Director of Pharmaca Integrative Pharmacy, Inc. Mr. Feinberg has been one of Wall Street's leading healthcare industry figures and over the course of his career, had served as an Analyst, Investment Banker, Merchant Banker, and Portfolio Manager. Mr. Feinberg received an M.B.A. from New York University in 1980 and a Bachelor of Arts degree from The University of Vermont in 1978.

Michael Petusky, analyst at Barrington Research
Michael Petusky joined Barrington Research in 2014 as Managing Director & Senior Investment Analyst covering Healthcare Services and focusing currently on the pharmacy, home infusion, rehabilitation, chronic care management and wellness, and senior housing, as well as Dental Services and select Medical Device companies. Prior to joining Barrington Research, Mr. Petusky covered healthcare services stocks and select medical device ideas for Noble Financial Group (2007-2014), Thompson Davis & Co. (2002-2007), and Branch Cabell, and its successor firms (1995-2002).

Mr. Petusky has been quoted in national publications such as Business Week, Investor’s Business Daily, Smart Money Magazine, and The Washington Post. In 2010, he received a StarMine analyst award for his stock-picking ability among analysts covering Healthcare Services.

Mr. Petusky has a B.B.A. (Finance-concentration) from the University of Richmond (1991) and also holds the Chartered Financial Analyst designation.