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On January 1st, 2013, Opko Health (NYSE:OPK) existed primarily as a molecular diagnostics company with only one advanced clinical stage drug in its pipeline, Rolipitant. The fact that the company had only this one drug in late stage clinical trials encouraged many bearish investors to sell approximately 30,000,000 shares of the company's stock short for around $4.50 per share. Yet on January 8th, Opko Health dropped a surprise on the investment community, announcing that the company would be acquiring the privately held Cytochroma Corporation and gaining worldwide ownership of 6 new drugs, each addressing billion dollar markets.

Following this transaction, on April 24th Opko Health announced that it was also acquiring Israeli-based Prolor Biotech and, in turn, adding an additional 4 clinical stage drugs to its pipeline, targeting markets ranging from $700M to $3B. While Opko Health, in my opinion, deserved its $1B market cap back in 2012 when I first invested in the company, there is no doubt in my mind that it deserves its $3.7B market cap today when considering that its pharmaceutical pipeline alone is set to enter potential markets, adding up to at least $79.8B. Interestingly enough however, perhaps the most bizarre reality distortion in terms of Opko Health's valuation is the fact that Opko's most advanced clinical stage Drug, Rayaldy, on its own, more than justifies Opko Health's valuation today of $3.7B, because $3.7B is less than 32% of this one drug's $12B+ market potential in the US alone.

D-Ficiencies

Currently Rayaldy is undergoing a Phase III clinical trial to treat Chronic Kidney Disease [CKD], Secondary Hyperparathyroidism [SHPT] and Vitamin D insufficiency. The estimated primary completion date of this trial on file with the FDA is March 2014, which means that this drug could be on the market as early as 2015 if approved. Yet while the total market for these indications is reported by Opko Health as being $12B in the US and $12B in Japan ($24B total), what has not been discussed publicly by the company are the dramatically positive effects which Vitamin D is showing to have in relation to Cancer, Alzheimer's Disease, Multiple Sclerosis, Osteoporosis, Cardiovascular Disease and various other disorders.

Currently the Harvard School of Medicine is conducting a 20,000 patient randomized trial to assess whether the administration of 2000 IU of Vitamin D daily lowers people's risk of Cancer, Heart Disease and Stroke. This preventative market, if shown to be viable, would expand the market for Vitamin-D to any patient looking to help prevent these specific disease indications. While the Harvard trial is focused on the disease indications previously mentioned, it is also assessing the benefits of Vitamin D for 15 other major medical indications which are too long to list, but you can view here.

Off-Label Prescribing

In the event that Vitamin-D is shown to be effective at treating and/or preventing various other disease indications, which I believe it will, Rayaldy's market potential will become much larger than its already large $12B US market estimate. The reason for this is due to a standard practice by physicians of prescribing off-label medications. The term off-label refers to the concept of a medication being prescribed for an indication which it hadn't initially undergone clinical trials for. In the case of Rayaldy, while it is currently undergoing Phase III trials to treat patients with SHPT, Stage 3 and 4 CKD and Vitamin D insufficiency, if approved, physicians will be free to prescribe it for any indication they see fit. WebMD states that more than 1 in 5 prescriptions written in the US are for off-label use. This is an extremely large market.

Many people may be surprised to know that the FDA regulates drug approval, not drug prescribing, and ... doctors are free to prescribe a drug for any [reason they think is medically appropriate]," says G. Caleb Alexander, MD, MS, a medical ethics advocate and assistant professor of medicine at the University of Chicago Medical Center. "Off-label use is so common, that virtually every drug is used off-label in some circumstances.

A Superior Formulation

Opko's Vitamin D drug Rayaldy, if approved, will enter a market with only two competitor drugs that appear to be significantly less potent and can carry much more dangerous side effects such as hypercalcemia and vascular calcification. One of the main problems with these current pharmaceutical Vitamin D competitors is their tendency to bind with calcium in the body, leading to the formation of calciferous encrustations that can damage patients arteries and kidneys. Last but not least, current over-the-counter Vitamin D supplements as well as the two current pharmaceutical formulations have been shown in studies to not be able to reliably raise Vitamin D phormone levels in the blood, or effectively treat Secondary Hyperparathyroidism [SHPT]. In the most recent Phase IIb trial which was completed by Cytochroma, Rayaldy demonstrated what appears to be a potential first class response in effectively and safely treating SHPT patients while correcting their underlying Vitamin D insufficiency. Rayaldy's current patent will protect the formulation until at least 2028 for all global markets.

Conclusion

While Opko's Rayaldy certainly has the potential to capitalize on markets that dwarf the Chronic Kidney Disease and Secondary Hyperparathyroidism market in comparison, these target indications alone are extremely significant and growing. To understand the increasing demand of Chronic Kidney Disease, one need look no further than Warren Buffett's Berkshire Hathaway (NYSE:BRK.B), whose current largest healthcare holding, Davita Healthcare (NYSE:DVA), is a company that provides dialysis services to patients with Chronic Kidney Disease [CKD] and End Stage Renal Disease [ESRD].

Davita is not only Berkshire Hathaway's largest healthcare holding and one of its top 10 largest stock positions, but Berkshire's head portfolio manager, Ted Weschler, personally owns 14.8% of the company in his own personal portfolio. It should be noted that along with Rayaldy, Opko Health is also working to commercialize its Phase III drug to treat End Stage Renal Disease (Stage 5 CKD) called Fermagate. While I'm not a fan of imitation, investors should take note of self-made billionaires such as Opko's CEO Dr. Frost and Berkshire's CEO Warren Buffett. Both entrepreneurs made their billions through stocks regardless of what business avenue they chose. The fact that both of these individuals have made extremely bold investments in the CKD market should speak volumes to all investors alike, and I don't think it was a coincidence.

Disclaimer: Please do your own due diligence, research and revenue estimates on OPK prior to investing in OPK or any stock, for that matter. I cannot guarantee that I have not made any errors in my calculations or market estimates. I cannot guarantee that OPK's stock price will go higher, lower, sideways, or neutral.

Source: Opko Health: Rayaldy's Major Unforeseen Impact