Opko Health Inc (OPK)

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FORBES: “The cash register is ringing at OPKO Health (OPK), which spells great news for investors”

NOV 20, 2015

The cash register is ringing at OPKO Health (OPK), which spells great news for investors. Last week, OPKO announced that its 4Kscore test for the detection of prostate cancer has been granted a Level I CPT code, which sets the stage for OPKO to finalize negotiations with insurance payers on reimbursement rates, meaning the test will get health insurance coverage.

Earlier this year, the National Comprehensive Cancer Network (NCCN), an alliance of the world’s leading cancer centers, recommended the 4Kscore test for the early detection of prostate cancer. Prior to the introduction of the 4Kscore test in 2014, a high prostate specific antigen (PSA) reading led to many false alarms, but to be safe men opted to have biopsies performed anyway. As a result, more than one million unnecessary biopsies occur every year, costing the U.S. healthcare system about $1.5 billion.

The 4Kscore diagnostic test is the only blood test that accurately identifies an individual patient’s risk for high-grade, aggressive cancer. In recommending the 4Kscore test, the NCCN panel stated that “the challenge is to minimize immediate treatment (over-treatment) of indolent cancers by accurately characterizing the biology of the detected cancer.” The “identification and selective treatment of aggressive cancers,” the NCCN pointed out, “should result in significant decreases in morbidity and mortality while limiting adverse effects on quality of life.”

The 4Kscore test incorporates measured levels of four prostate-specific kallikrein proteins – total PSA, free PSA, intact PSA and human Kallikrein-2 (hK2), plus the patient’s clinical information – into a proprietary algorithm to calculate an individual patient’s recent risk for aggressive prostate cancer. The four Kallikrein-2 panel of biomarkers used in the 4Kscore test is based on over a decade of research conducted by scientists at Memorial Sloan-Kettering Cancer Center and leading European medical institutions.

The test is intended for a man with an elevated PSA and/or abnormal digital rectal exam who is being considered for initial or repeat prostate biopsy to identify the risk of high-grade prostate cancer. If the 4Kscore test confirms a heightened risk of aggressive cancer, defined as a Gleason score of 6 or higher, the patient would then have a prostate biopsy performed.

Today, about 2,000 U.S. urologists have used the 4Kscore test in routine practice, and about 100 tests per day are being conducted. “This has been accomplished with a sales force of 10, but now the rate of uptake is about to accelerate as we bring online a team of 100 salesmen gained with the acquisition of Bio-Reference Labs recently concluded, who will be penetrating the primary-care physician market,” said Dr. Phillip Frost, CEO of OPKO Health.

There are two million abnormal PSAs identified annually, with one million of these resulting in biopsy cases. “That two million abnormal PSA universe is our market,” says Dr. Frost. With a list price of about $1,000 per test, that translates into a $2 billion market opportunity annually in the U.S. alone.

Insurance coverage for the 4Kscore test is expected to occur in about six months, with Medicare coverage anticipated within six to nine months.

In the October 2014 edition of European Urology, the official journal of the European Association of Urology, the 4Kscore test was deemed to be “unique in that it provides an individualized prediction of clinically relevant prostate cancer for each patient.” The 4Kscore test has been shown to affect the decision for proceeding to a prostate biopsy in up to 85 percent of cases, and one study showed that prostate biopsies could be reduced by 60 percent.

A total of 12 prospective and retrospective studies on the 4Kscore biomarkers and algorithm involving over 22,000 patients from both the U.S. and Europe have been published in peer-reviewed journals. One of the authors of this study, Dr. Dipen Parekh, professor and chairman of the Department of Urology at the University of Miami and principal investigator for the recently published U.S. multicenter validation study, has stated that “since its launch, I have been offering and using the 4Kscore test with my patients who have abnormal PSA prior to a first prostate biopsy and before repeating a prostate biopsy after a negative biopsy.” The 4Kscore “provides me, as a clinician, with important information about my patient’s individual risk for having aggressive prostate cancer, and allows me to have informed discussion with my patient about whether or not to proceed with a prostate biopsy or safely follow the patient.”

One hurdle OPKO will need to address is the fact that fewer men are being screened for prostate cancer, according to two studies published earlier this week in The Journal of the American Medical Association. This is not because the incidence of prostate cancer cases has declined. According to the American Cancer Society, about 220,800 new cases of prostate cancer are expected in 2015, and 27,540 deaths will occur. Rather, the decrease in testing is the result of a recommendation against screening by the U.S. Preventive Services Task Force.

Dr. David F. Penson, chairman of urologic surgery at Vanderbilt University Medical Center, commented that rather than reducing screening, a way should be found to “screen smarter.” Perhaps the 4Kscore test is the holy grail for smarter screening.

In any case, OPKO is not a one-trick pony: It’s a diversified biotechnology and drug discovery company with a significant proprietary drug portfolio. And with the completion of the Bio-Reference Labs acquisition in August, OPKO now ranks among the top three testing labs in the U.S. The Bio-Reference lab will be an important platform for the 4Kscore test sell-through to family physicians and oncologists, expanding the market beyond urology.

OPKO reported on Nov. 9, 2015, its third-quarter (ended Sept. 30) financial results that showed revenues of $143 million, way up from $19.8 million in the same period one-year ago. And, OPKO earned 25 cents a share in the quarter versus a loss of 11 cents in the same period a year ago.Some savvy investors have bought shares during the autumn swoon in biotech shares. The stock has been inching up since hitting a low of $8.41 on September 30. Dana Flanders, analyst at J.P. Morgan, rates the stock, currently trading at about $10, as “overweight,” with a price target of 14.

OPKO is “on the cusp of what we expect to be a healthy growth cycle, driven by several potentially promising product launches across its pharma, biologics, and diagnostic businesses,” says Flanders.

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Gene Marcial
I have an insider's take on Wall Street Full Bio «

I wrote the Inside Wall Street column at Business Week Magazine for 28 years, through December 30, 2009. It was one of the most influential market columns as it moved stocks that I highlighted each week. BW had a yearly ScoreCard Report that tracked the performance of the stocks I mentioned, and the results confirmed their positive impact..I also wrote two books: "http://www.amazon.com/Secrets-Street-Dark-Making-Money/dp/0070402566"; Secrets of the Street, the Dark Side of Making Money,” published by McGraw-Hill in 1995, and “Gene Marcial’s Seven Commandments of Stock Investing,” published by FT Press in 2008. I resumed writing the “Inside Wall Street” column for AOL DailyFinance after Bloomberg acquired BW in December 2009. Subsequently, I moved the column to MSN.com after AOL merged with the Huffington Post. I then started writing for Forbes.com with a new column, “Street Beat,” in mid-April 2011, where I expect my readers will follow me.