Opko Health Inc (OPK)

[tomsylver]

http://www.fool.com/investing/general/2015/11/21/opko-healths-new-era-begins.aspx?source=eptadnlnk0000002&utm_source=advfn&utm_medium=cpc&utm_campaign=investorshub


Opko Health's New Era Begins
An acquisition, an approval, another potential approval, and key trial results set the stage for a transformative 2016.

Todd Campbell (TMFEBCapital) Nov 21, 2015 at 7:02AM
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IMAGE SOURCE: OPKO HEALTH.

Following massive investments over the past two years that have swelled spending on research and development and included a slate of acquisitions, Opko Health (NYSE:OPK) could soon be on its way to delivering consistent quarterly profit to shareholders.

Bigger is better
Opko Health's billionaire founder, Philip Frost, is legendary for orchestrating acquisitions that add value. After acquiring IVAX Pharmaceuticals in the 1980s and then growing it through M&A, he sold the company to TEVA Pharmaceuticals for $7.4 billion in 2005.

Frost could do even better than that with Opko Health.

After inking a slew of deals in the past to boost Opko Health's drug pipeline, Frost bought the specialty laboratory company Bio-Reference Labs for $1.5 billion this past summer.

Because Bio-Reference Labs is the third largest laboratory services company, with roughly $200 million in pre-acquisition quarterly sales and $0.24 in quarterly pre-deal earnings, the acquisition significantly increases Opko Health's sales while also giving it valuable cash flow to advance its pipeline and the potential for ongoing profitability.

Delivering on deals
One of Opko Health's first acquisitions was rolapitant, a phase 3-ready drug that treats chemotherapy-induced vomiting and nausea, that Frost bought from Schering-Plough in 2009.

In 2010, Opko Health turned around and licensed rolapitant to Tesaro (NASDAQ:TSRO) for up to $121 million in milestone payments and tiered double-digit royalties and in September, the FDA-approved rolapitant for use under the brand name Varubi.

Since Tesaro was founded by Lonnie Moulder, the guru who helped launch the successful chemotherapy nausea drug Aloxi, and antinausea drugs like Merck's Emend generate hundreds of millions of dollars in sales annually, Opko Health could start seeing meaningful revenue from Varubi soon.

Opko Health is also about to find out whether its acquisition of Cytochroma to get its hands on the vitamin D prohormone Rayaldee pays off.

Rayaldee is under FDA review for approval as a therapy to boost vitamin D in patients suffering from chronic kidney disease.

Stages 3, 4, and 5 CKD patients often suffer bone loss tied to imbalances in vitamin D that require treatment and that treatment typically consists of supplements that can deliver vitamin D inadequately or medicines that aren't all that effective. If approved, Opko Health believes that Rayaldee could offer a better alternative in a market it estimates to be worth $12 billion.

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Of course, no one knows how much of that market Rayaldee can capture, but investors should get a better idea next year given that the FDA's decision on Rayaldee is expected on March 29.

Opko Health's long-acting human growth hormone, hGH-CTP, which can be dosed once weekly instead of daily like current therapies, is also nearing the finish line.

The company acquired hGH-CTP when it bought Prolor for $480 million and earlier this year, Pfizer (NYSE:PFE) inked a deal that could be worth hundreds of millions of dollars to Opko Health, plus royalties and potential profit sharing.

Specifically, to protect the market share for its human growth hormone Genotropin, Pfizer paid Opko Health $295 million in up-front cash and agreed to pay another $275 million in potential milestones, plus royalties, to license hGH-CTP. Pfizer also agreed to split profit on Genotropin with Opko Health if hGH-CTP notches approval for use in children.

Results from hGH-CTP's phase 3 trial are anticipated in the second half of 2016 and if those results are good and hGH-CTP eventually wins the FDA go-ahead, then it will compete in a market worth over $3 billion annually.

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Looking forward
Opko Health's C-suite is packed with former IVAX leaders, including Jane Hsiao, who is vice chairman and worked at IVAX with Frost for more than a decade, and Steven Rubin, Opko Health's executive vice president, who worked at IVAX for five years.

That team appears to have cobbled together an intriguing mix of drugs, products, and services and their efforts could soon pay off.

Given Opko Health's upcoming catalysts including Varubi royalties, Rayaldee's FDA decision, and hGH-CTP late-stage trial results, 2016 is shaping up to be a critical year for Opko Health that investors shouldn't ignore.

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Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Todd Campbell

TMFEBCapital

Todd has been helping buy side portfolio managers as an independent researcher for over a decade. In 2003, Todd founded E.B. Capital Markets, LLC, a research firm providing action oriented ideas to professional investors. Todd has provided insight to a variety of publications, including SmartMoney, Barron's, and CNN/fn.

ARTICLE INFO
Nov 21, 2015 at 7:02AM
Health Care
STOCKS

Pfizer
NYSE:PFE
$32.18 $0.11 (-0.34%)

TESARO
NASDAQ:TSRO
$48.03 $1.30 (2.78%)

Opko Health, Inc.
NYSE:OPK
$10.88 $0.12 (1.12%)
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