Opko Health: A Potential $8.3 Billion A Year Company In The Making

 |  About: OPKO Health, Inc. (OPK), Includes: GSK, MRK, MSFT, NVS, SNY, TSRO
by: Josh Ginsburg

In my previous article on Opko Health (NYSE:OPK), I discussed several of the forefront products the company is working to bring to market in the near future. Since that article, to my surprise, Opko's CEO Dr. Phillip Frost was asked to be interviewed on Jim Cramer's Mad Money where he further discussed the future of his company. You can view this recent interview here. Disclosed by Dr. Frost was that one of the drugs acquired from Cytochroma which will be the soonest one to complete phase III trials, has a 12 billion dollar market potential in the U.S. and nearly the same size market potential in Japan. Dr. Frost states that the competition for Opko's newest drug currently consists of only two competitor drugs and that these drugs are inadequate in effectiveness.

In assessing the potential market value for Opko's newest phase III drug, the following steps were taken. The $12 billion market calculation was provided by multiplying the amount of U.S. patients with chronic renal disease (4,000,000) by the yearly amount a patient pays for their renal drug prescriptions ($3,000). In a rough estimate calculation, if each one of these three drugs in this space were to capture one third of the market, then we would arrive at a $4 billion dollar annual revenue from each drug ($12 billion ÷ 3). Since Japan's market is noted as being almost the same in size, let's infer that it is conservatively around an $8 billion potential market. If Opko faces the same competition in this market, then we would be looking at an estimated potential annual revenue of over $2.5 billion from Opko's drug in Japan ($8 billion ÷ 3). The combined total estimated potential revenue from Opko's drug in these two markets comes out to a total of $6.5 billion annually.

Please keep in mind that these are estimates using the current renal disease market information provided and there are no guarantees. As well please keep in mind that this drug is still pending Phase III and final FDA approval. If the drug does receive these approvals, which I believe it will, then in a less conservative analysis I would infer the market share that Opko's drug captures will exceed my one third estimate.

In the previous Opko article, I brought up that there was overlooked information regarding one of Opko's business ventures that the public has not acknowledged. This information is regarding the company's line of next generation vaccines that are currently in development. For several years now, Opko Health has been working behind the scenes to develop a panel of protein-based next generation vaccines which are aimed at diseases such as Cancer, Influenza, Autoimmune Disease, Infectious Disease and various other disorders. While the market has assigned little to no significance to this area of Opko's business, it has also been ignorant to the fact that one of the biggest purchasers of vaccines across the globe has taken an interest in Opko. This party is the Bill and Melinda Gates Foundation. In 2010, Microsoft (NASDAQ:MSFT) founder Bill Gates declared that he would be making the next 10 years, "the decade of vaccines." Further, he pledged to donate $10 billion towards the development and distribution of vaccines through his foundation's vaccine initiative.

In 2012, The Bill and Melinda Gates Foundation got involved with Opko Health, providing the company with a grant to further develop its diagnostic test for TB as well as to conduct further TB drug testing. The foundation also provided a multi-million dollar grant to Scripps Research Institute scientist Tom Kodeck, who also works with Opko. In the event Opko Health brings to market the next generation vaccines it has been developing, I foresee a large revenue potential not only with the Bill and Melinda Gates Foundation, but also from the vaccine market in general. Currently, the vaccine market consists of only a handful of companies. These vaccine companies including: Merck (NYSE:MRK), Novartis (NYSE:NVS), Sanofi Pasteur (NYSE:SNY), GlaxoSmithKline (NYSE:GSK) and Wyeth, comprise around 80% of the vaccine industry. This lack of vaccine manufacturers has lead to volatile fluctuations in the global supply of vaccines, in turn causing frequent shortages. Opko's panel of vaccines would not only be entering a growing market which is already in short supply, but could also potentially trump its competitors in product effectiveness and capability.

On October 3rd of 2012, writer John Ford published an article showing how Opko's 4Kscore for Prostate Cancer could generate over $1.8 billion dollars annually. In my own previous article, I also discussed how Opko Health's Chemotherapy drug Rolapitant which has been licensed to Tesaro (NASDAQ:TSRO) has the potential to be a billion dollar revenue generator as well. Since that article, Dr. Frost has confirmed Rolapitant's billion dollar potential and the substantial royalties and milestone payments Opko is due to receive from its sales. If we combine the potential of the newest Cytochroma drug with the 4Kscore we can see a potential of an estimated $8.3 billion dollars of annual revenue from these two products alone. Interestingly enough, however, is the fact that these two products only make up a small percentage of the total business ventures in Opko Health's portfolio. There certainly are numerous areas which I have not touched on.

I encourage readers and investors to do their own due diligence on the figures I have presented today and to come up with their own estimates on where they see Opko Health's future revenue potential. I will be interested to hear your thoughts.

Disclosure: I am long OPK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.