Opko Health: Just What The Doctor Ordered

| About: OPKO Health, (OPK)

Back in March of 2012, I interviewed Dr. Phillip Frost of OPKO Health Inc. (NYSEMKT:OPK). At the time, OPK was trading at $4.87, a 52wk range of $3.15-$5.85, and a Market Cap of 1.44B. Moving to current day, OPK has a Market Cap of $3.25B, trades at nearly $8.00, within a 52wk range of $5.87-$12.95. Dr. Frost, through a consistent insider buying effort beginning in 2007, now controls approximately 153 million shares, about 38% of the outstanding shares of the company, quite a statement in the insider ownership department. Headquartered in Miami, Florida, OPKO is pharmaceutical and diagnostics company that develops and commercializes novel and proprietary technologies that include molecular diagnostics tests, vaccines to diagnose, treat, and prevent neurological disorders, infectious diseases, oncology, and ophthalmologic diseases. OPKO was formed 7 years ago in 2007 by the merging of two companies, Acuity Pharmaceuticals and Froptix. Prior to OPKO, Frost, a principle at IVAX, sold it to Teva Pharmaceutical (NASDAQ:TEVA) in 2006, after also selling Key Pharmaceuticals, which he also founded, to Schering-Plough. The link to Teva is still significant and plays out in current market activities for OPKO. An investment and ride along with Dr. Frost is not for the faint of heart, as it's been up and down the charts in the prior 12-month period, but if you can survive the white knuckle approach, it may pay off significantly. OPKO generates the majority of its revenue (projected at approximately $90 million for FY-2013) from European and Latin American markets. The company has continued to report problematic cash flow negatives (approximately $40 million last 12 months) but on the upside, its revenue stream is growing. On the cash front, the company ended the last quarter with about $181 million in cash and $227 million in debt.

What's Ahead?

There are multiple promising drugs and developments in the making that should serve as catalysts and large revenue stream generators coming up in the next 12-24 months, leading to upticks and an overall stronger financial picture for the company.

One super potential is Rayaldy, a Phase III drug for the treatment of secondary hyperparathyroidism or (SHPT), stage 3 or 4 Chronic Kidney Disease (CKD), and vitamin D insufficiency. SHPT, a condition often associated with CKD, results when parathyroid glands secrete excessive amounts of PTH. SHPT arises as a result of vitamin D insufficiency or impaired kidney function. About 40-60% of patients with moderate CKD and approximately 90% of patients with severe CKD are affected with SHPT.

Chronic Kidney Disease (CKD), which is defined by a gradual loss of kidney function over a period of time, is also known as chronic renal disease. There are three basic tests to detect CKD consisting of blood pressure, urine albumin, and serum creatinine. Glomerular filtration rate (GFR) is the best estimate of kidney function and identifies the developmental stage, of which five are defined, ranging from mild (stage 1) to severe (stage 5) disease.

Diabetes and high blood pressure are the two main causes of CKD, making up two-thirds of reported cases. High-risk groups include people with diabetes, and hypertension. Individuals with family members who have had kidney disease are at more risk than others as well as seniors. Other at-risk groups include African Americans, Hispanics, Pacific Islanders, and American Indians. Individuals with CKD mostly die from Heart Disease and it is reported that Hypertension causes CKD, vice versa (CKD causes hypertension). The National Kidney Foundation states that CKD afflicts over 26 million people in the U.S., including more than eight million patients with moderate (stages 3 and 4) and severe (stage 5) forms of CKD. Patients in stage 5 have almost no kidney function and require dialysis or a transplant. Vitamin D insufficiency is a condition in which the body has a low amount of vitamin D on hand as result of inadequate blood levels of vitamin D prohormones, collectively known as 25-hydroxyvitamin D. It is estimated that 70-90% of CKD patients have vitamin D insufficiency, leading to SHPT.

Where is Opko in regard to Rayaldy?

OPKO is in the second phase of two identical randomized, double-blind, placebo controlled, multi-site studies designed to establish safety and efficacy as a treatment for SHPT. The endpoints of the studies, which are being conducted in parallel, include vitamin D status and changes in serum calcium, serum phosphorus, and plasma intact parathyroid hormone (PTH). Each of the two Phase III trials will enroll 210 patients recruited at approximately 40 different sites in the U.S. Top-line data is expected to be available in mid-2014, a potential big catalyst event. At present, one of the therapeutic treatments offered by doctors consists of large doses of prescription vitamin D to correct vitamin D insufficiency in patients with chronic kidney disease. Company officials believe that Rayaldy offers a better and advanced treatment plan. Company officials have said that approximately 4 million CKD stage 3 and 4 patients are present in the U.S. with SHPT and vitamin D insufficiency. Dr. Frost believes that Rayaldy will be game-changer, and become the treatment of choice over vitamin D supplements from Roche's Rocaltrol and Calcijex offered from Abbott Labs (NYSE:ABT).

Other Positives for OPKO

In August 2013, Opko acquired PROLOR Biotech, Inc. (NYSEMKT:PBTH) (http://www.prolor-biotech.com) and along with it, PROLOR's long-acting version of human growth hormone, hGH-CTP. PROLOR, in an interesting strategy, develops proprietary versions of therapeutic proteins that are already regulatory approved. Their Carboxyl Terminal Peptide technology is an example. It can be attached to a wide range of existing therapeutic proteins, that subsequently act as a stabilizing factor for the therapy in the bloodstream, extending its lifespan without further toxicity or breakdown of other biological factors.

The prior-mentioned Human Growth Hormone ("hGH") is designed for long-term treatment of children and adults with growth failure due to below normal secretion of endogenous growth hormone. That affliction is reported to be a $3 billion market. PROLOR's hGH could potentially be injected once a week or twice per month, instead of daily. PROLOR has completed four clinical trials, most recently a Phase II trial in adults with growth hormone deficiency (GHD). The trials demonstrated that hGH-CTP reduced the required dosing frequency of human growth hormone from the current standard of one injection per day to a single weekly injection. Safety and tolerability also reported well. hGH-CTP has been awarded orphan drug designation in the U.S. as well as Europe for adults and children with GHD. A potential 2014 approval could be a significant catalyst event.

Another potential gem is PROLOR's GLP-1/Glucagon dual receptor agonist for Diabetes Type II, injectable once weekly with a better weight-loss profile than current GLP-1 therapies. This represents a potential market opportunity of $2 billion. Also on the development burner is Factor VIIa and Factor IX for treatment of Hemophilia, thought to be an over $2 billion dollar market, and Anti-Obesity Peptide Oxyntomodulin along with Rheumatoid Arthritis treatments.

Under OPKO's roof is also 4Kscore™ a next-generation novel prostate cancer test. OPKO representatives believe that the test can reduce by half the number of 750,000 unnecessary biopsies performed annually in the U.S., and according to some analysts, has a revenue potential of $300 million. Dr. Phillip Frost has set a pattern over the past 7 years of investing and reinvesting in OPKO Health stock and concentrated on other key company and product acquisitions. That strategy has worked for him and other investors, and likely it will continue to do so. Entry at the $8.00 price range with upcoming developments and catalysts from the PROLOR acquisition and OPKO effort should prove again that OPKO is a good buy with profit potential.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.