Opko Health (NYSE:OPK) is a pharmaceutical and diagnostics company serving the in-office patient care and cancer treatment markets. The company is developing new solutions for the diagnosis and treatment of cancerous and neurodegenerative ailments, with FDA approval deadlines in upcoming years. Opko Health has a team of executives who have previously founded billion-dollar companies and who have been aggressively pursuing strategic acquisitions, but investors are wondering about the specific situation in 2012. Is Opko Health a good investment now? If Opko Health does not have a drug candidate in Phase III trial, what are the near-term catalysts that could benefit shareholders? Finally, what is the meaning of the large insider purchases of Opko Health common stock (over $30 million during the past 12 months), and how does this relate to the short interest of over 17% of the float?
This article will provide a more detailed analysis of Opko Health's situation in late March 2012. It will provide a glimpse into the financial strength and viability of the organization. For investors considering an investment in Opko Health ahead of upcoming catalysts, this can serve as a primer for due diligence and personal consulting of a registered financial advisor.
Financial statements in early 2012 indicate that Opko Health has no liquidity problems, with total liabilities being a small percentage of total cash. Per SEC filings, the cash burn rate is such that Opko Health will not need to raise additional financing for at least two years. Moreover, if management chooses to raise additional cash, filings indicate that Opko Health's annual burn rate of less than $30 million is less than 2% of the market capitalization of the $1.43 billion company, anyway.
Shares of Opko Health have outperformed the S&P 500 Index by over 20% over the past 12 months. This strength is attributable to several factors, including the current state of worldwide diagnostic cancer needs and Opko Health's focus on capitalizing on entrenched inefficiencies of in-office patient care. For example, costly biopsies and blood tests prevent many cancer patients from early detection of disease, and Opko Health is aggressively pursuing solutions for early detection at less than $35 per patient test. Likewise, blood tests currently require a time-consuming hospital procedure and large expenses, and Opko Health is developing a credit card-sized portable computer that can perform the same test in 10 minutes with only a single drop of blood.
Opko Health's cancer diagnosis wing and the recent modernization of its instrumentation wing have boosted the demand for the company's products across the world. Cash flow has been improving on a quarterly basis over the past year, and the company now employs over 200 full-time staff who generate over $30 million in annual revenues. Improving industry trends and increased demand have also caused management to invest heavily into its pipeline drug candidates, including three drugs already in FDA clinical test phases.
Many investors understand that there are long-term catalysts for Opko Health, but they are nevertheless concerned about near-term catalysts. They ask what could drive up the price of Opko Health shares during 2012. In response, although expedited clinical advancement of a drug candidate or a major buyout of Opko Health's portfolio by a large pharmaceutical firm are obvious possibilities, there is also a less obvious situation developing in late March 2012. Some investors have noticed that CEO Dr. Philip Frost (who launched and sold Key Pharma for $600 million and then launched and sold Ivax for over $7 billion) has been buying back Opko Health shares in the open market in substantial amounts. Indeed, Dr. Frost has bought over $20 million shares of common stock in the past year alone and owns over 110 million shares, continuing to add more shares almost every week. Investors know that Dr. Frost is worth over $2 billion personally--more than the entire market capitalization of Opko Health--and his appetite for buying shares for his personal account is apparently not declining. Indeed, he already owns around half the company's shares and, when added to over 13% institutional ownership (led by Vanguard), Opko Health's short interest of over 17% does legitimately raise the question as to whether Opko Health might set up for a short squeeze in 2012. No one can predict an event like this with any certainty, but nevertheless, short-sellers should at least stay aware of the high institutional and insider ownership of Opko Health.
Long-term investors do not typically concern themselves with short squeeze speculation. Just as there could be a short squeeze, there could also be sudden negative news. The stock market is always uncertain. The most important aspects of Opko Health remain--as with any pharmaceutical company--in its actual portfolio: Doxovir, Peptoides, Aquashunt, SCH 900978, H1N1/H5H1 flu vaccines, and diagnostic kits for cancer and Alzheimer's diseases. These portfolio items reflect billions in potential revenues, but the cash flow is still uncertain until the government grants approval and manufacturing is completed. Such are the risks of almost any pharmaceutical investment.
Should the reader care to continue studying Opko Health and whether it should be added to a personal investment portfolio, regulatory filings and a discussion with a certified financial planner are great next steps. Hopefully the reader found this article to be a helpful primer on the broad issues regarding Opko Heath (NYSE: ).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.