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  • The complete Summary on Opko Health (opk) The investors guide 0 comments
    Nov 30, 2011 9:18 PM | about stocks: TEVA, OPK, MRK, DRUG
    Opko has perhaps one the most attractive "revenue ramps" (according to the likes of Mad Moneys Jim Crammer and others) in the bio-tech sector. Diagnostics account for over 500 billion in revenue world wide, and the technology that opko possesses is nothing short of a "game changer". For example a simple vitamin d test alone, annually world-wide is performed over est. by 2012 500 million times (500,000 by the Mayo clinic alone in 2009) @ an average of $50.00 per test, you can see why this company's true value lies in its potential revenues. Opko can currently perform over 20 mainstream diagnostics tests which use to take days or weeks to conclude, now in-house within 10 minutes with greater accuracy, reliability and with less evasiveness  than ever before. With only a 1.8 billion dollar market cap.....this stock is "dirt-cheap". I think that by the summer of 2012 Opko (NYSEMKT:OPK) will be trading well above the $22.00 to $26.00 price level on anticipated revenues.  Please research for yourself.

    The CEO of Opko Health is Dr. Phillip Frost. He has an excellent histry of buying, running than selling small bio-tech companies at HUGE profits for early stock holders.... (NASDAQ:TEVA) being his last venture before Opko.  Over 6000% was made by early investors.  Opko will be no exception.  This man is not only a genius , but he is also a brilliant, billionaire businessman with an unmatched ability to seek out undervalued bio-tech companies like Claros and run them in such a way as to making them irresistible acquisitions by big pharma companies.

    Opko, with Dr. Frost at its' helm, will soon acquire a  large percentage of the 500 billion dollar market share for diagnostics and soon be priced to reflect this revenue.  By then I am sure that the stock price will be well into the $50.00 price range or more.

    USD Prev. 2010A Prev. 2011E Prev. 2012E Prev. 2013E
    Rev. (NYSE:MM) -- 36.9 -- 50.3 -- 35.4 -- 49.1
    Consensus -- (0.09) -- (0.09) -- (0.09) -- --
    EPS
    Mar -- (0.02) -- (0.02)A -- (0.04) -- --
    Jun -- (0.03) -- (0.02)A -- (0.05) -- --
    Sep -- (0.03) -- (0.03)A -- (0.05) -- --
    Dec -- (0.01) -- (0.08) -- (0.05) -- --
    FY Dec -- (0.08) -- (0.16) -- (0.18) -- (0.18)
    Price Performance
    NOV-10 MAR-11 JUL-11 NOV-11
    6
    5
    4
    3
    2
    COMPANY NOTE
    Initiating Coverage
    USA | Healthcare | Biotechnology November 10, 2011
    Opko Health, Inc. (OPK)
    Initiating with Buy: Evolving Strategy for Risk
    Diversification & Growth
    EQUITY RESEARCH AMERICAS
    BUY
    Price target $8.00
    Price $5.16
    Financial Summary
    Book Value (MM): $102.5
    Book Value/Share: $0.36
    Net Debt (MM): ($74.9)
    Cash/Share: $0.31
    Cash (MM): $87.4
    Market Data
    52 Week Range: $5.57 - $2.80
    Total Entprs. Value (MM): $1,423.0
    Market Cap. (MM): $1,497.9
    Insider Ownership: 60.0%
    Institutional Ownership: 8.0%
    Shares Out. (MM): 290.3
    Float (MM): 123.7
    Avg. Daily Vol.: 1,507,419
    Eun K. Yang, Ph.D. *
    Equity Analyst
    (212) 284-2264 eyang@jefferies.com
    Eileen Flowers, Ph.D. *
    Equity Associate
    (212) 284-2192 eflowers@jefferies.com
    * Jefferies & Company, Inc.
    Key Takeaway
    OPK is not a typical biotech/healthcare company, rather it is a holding
    company with constantly evolving investment in product/technology for risk
    diversification and growth enhancement. While unquantifiable value of OPK
    shares lies in Dr. Phillip Frost’s track record (CEO at OPK, chairman of board
    at TEVA), we view its diversified portfolio as attractive for significant upside
    opportunities at limited downside risks.
    Founded by Dr. Phillip Frost, OPK operates in several distinct business
    segments, ranging from revenue-generating, profitable high-growth emerging markets
    to in-development diagnostics tests and preclinical-stage drug discovery. With significant
    insider ownership (management incentives in-line with shareholders), OPK's strategy is to
    build a premier HC company while creating near-/medium-term value for shareholders. We
    view aggressive insider buying as positive; YTD, insider holding increased by ~19% to ~60%
    of current outstanding OPKO shares.
    Upon its profitable emerging market business, its diagnostic business offers
    near-term revenue opportunity. With the recent Claros acquisition, OPK is to launch
    Claros’ point-of-care PSA system in Europe in 1Q12; with potential 510(k) approval in the
    U.S. by YE12, we forecast ~$500M in peak U.S./EU sales. In addition, in-development simple
    blood-based diagnostic test for Alzheimer’s disease (AD) and cancers (yet-to-be proven
    technology) could provide significant long-term upside potential (>~$800M in sales).
    RNA-based drug discovery focuses on rare orphan diseases, while rolapitant
    entering Phase 3 in 4Q11 by partner Tesaro (a private company formed by three
    former senior executives of MGI Pharma). We forecast peak royalty revenue of $78M to OPK,
    in addition to $121M in potential fee/milestone payments from Tesaro. Note that OPK paid
    $2M cash/$27M in future milestones to acquire rolapitant from Schering-Plough in 2009.
    Valuation/Risks
    Our $8 PT is based on an NPV of ~$1/sh for emerging markets, ~$3/sh for Claros’ PSA system,
    ~$3/sh for AD/ cancers Dx, and ~$1 for rolapitant royalty from Tesaro. Risks associated
    with OPK shares include, but are not limited to: (1) FDA’s stringent oversight of laboratorydeveloped
    tests (LDTs), requiring premarket approval (vs. CLIA-certified labs); (2) failure/
    delay in LDTs for AD and/or cancer; and (3) and general HC industry risks (e.g., competition,
    patent infringement, changes in regulatory/HC policies, pricing/reimbursement).
    Jefferies does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that Jefferies may have a conflict
    of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
    Please see analyst certifications, important disclosure information, and information regarding the status of non-US analysts on pages 23 to 26 of this report.
    Long Term Financial Model Drivers
    LT Earnings CAGR (’10-’14) NA
    Organic Revenue Growth ~23%
    Acquisition Contribution 0%
    Operating Margin Expansion ~12%
    Other Considerations
    OPKO is not a typical biotech/HC company,
    but a holding company with constantly
    evolving investments in various
    technologies/companies for risk
    diversification. With Dr. Frost’s track record
    of opportunistically acquiring assets and
    successfully building a company, coupled
    with significant insider ownership, we view
    it as well poised for significant upside
    opportunity at limited downside risks.
    Net Income/Loss ($ in MM)
    Source: Capital IQ, Jefferies estimates
    -21.6
    -45.3
    -53.8 -56.2
    -60.0
    -50.0
    -40.0
    -30.0
    -20.0
    -10.0
    0.0
    2010A 2011E 2012E 2013E
     Headquartered in Miami, Florida, OPKO Health was founded by Dr. Phillip Frost from a
    three-way merger of Froptix Corporation (controlled by The Frost Group, LLC), Acuity
    Pharmaceuticals, and eXegenics on March 27, 2007. Since then, OPKO has engaged in
    opportunistic/strategic acquisitions, licenses and investments to create a broad and
    diversified portfolio, including molecular diagnostics, pharmaceuticals, vaccines and highgrowth
    emerging markets – ranging from revenue-generating emerging market segment to
    preclinical-stage drug discovery/development. Dr. Frost is the Chairman of the Board of Teva
    Pharmaceutical since March 2010. He was Chairman of the Board of Directors and CEO of
    IVAX Corporation since 1987, which he sold to Teva in 2005.
     Validation study data for Alzheimer’s
    disease (AD) Dx test in 1Q12
     EU launch of Claros’ point-of-care PSA
    system in 1Q12
     Data from 6-month study for Claros’
    point-of-care PSA system (vs. current
    STD test) in 2H12
     Potential 510(k) approval of Claros’
    point-of-care PSA system by YE12
     Launch of AD Dx test as LDT in 2013
    Catalysts
    Target Investment Thesis
     Founded/run by Dr. Phillip Frost
    (Chairman of Board at TEVA)
     Several distinct business segments, ranging
    from profitable, high-growth emerging
    markets to diagnostics tests and preclinicalstage
    drug discovery/development.
     Our NPV analysis puts target price of $8
    (~$1/sh for emerging markets, ~$3/sh for
    Claros’ PSA system, ~$3/sh for clinical
    diagnostic tests, and ~$1 for rolapitant
    royalty from Tesaro)
    Upside Scenario
     Validation study success for Alzheimer’s
    disease Dx test
     Successful development of cancer Dx tests
     Better-than-expected acceptance/adoption
    of Dx tests by physicians
     If we increase a probability for Dx test
    success to 100% (from 60-65% for
    AD/cancers), we arrive at a fair value of
    ~$11 for OPKO.
    Downside Scenario
     Failure in validation study for the
    AD/cancer diagnostic test
     Delays in commercial availability of Dx
    test due to FDA requiring PMA process for
    LDTs
     Slower-than-expected adoption of Dx
    tests following launch
     If AD/cancer Dx tests fail to reach the
    market, we arrive at a fair value of ~$3 for
    OPKO.
    Long Term Analysis
    Scenarios
    Enterprise Value ($ in MM)
    Source: Capital IQ, Jefferies estimates
    1407
    344
    715 696
    1381
    322
    0
    500
    1000
    1500
    Recommendation / Price Target
    Ticker Rec. PT
    OPK Buy $8
    EXAS Buy $9
    GHDX Hold $29
    VIVO NC NC
    MYGN Buy $27
    SQNM Hold $7
    Company Description
    THE LONG VIEW
    Peer Group
    OPKO Health, Inc.
    Buy: $8 Price Target
    page 2 of 26 Eun K. Yang, Ph.D. , Equity Analyst , (212) 284-2264 , eyang@jefferies.com
    Please see important disclosure information on pages 23 - 26 of this report.
    OPK
    Initiating Coverage
    November 10, 2011
    Executive Summary
    We are initiating coverage of OPKO Health with a Buy rating and $8 price
    target. Founded by Dr. Phillip Frost, OPKO Health is comprised of several distinct
    business segments, ranging from revenue-generating high-growth emerging markets to
    diagnostics tests and preclinical-stage drug discovery/development. OPKO is not a typical
    biotech/HC company, but a holding company with constantly evolving investments in
    various technologies/companies for risk diversification. With Dr. Frost’s track record of
    opportunistically acquiring assets and successfully building a company, its goal is to
    diversify its technology platform/products as well as geographic presence. We view
    aggressive insider buying as positive; YTD, insiders have increased their holding by ~19%
    to ~60% of current outstanding OPKO shares.
    OPKO’s key focus is on emerging market business, simple blood test-based
    diagnostics in development, and RNA-based drug discovery platform. Its
    emerging markets segment (profitable unit) is currently the major source of revenue
    (~$37M in 2012E). We think OPKO’s recent acquisition of Claros Diagnostics
    complements its in-development non-invasive, simple blood tests for Alzheimer’s disease
    (AD) and cancers (commercial availability starting in ~2013 by our estimate) and creates
    near-term revenue opportunity from the launch of Claros’ point-of-care PSA system in
    Europe expected in 1Q12. With potential 510(k) approval in the U.S. by YE12, we forecast
    ~$500M from the PSA system in peak U.S. /EU sales (>2020). Utilizing its AntagoNAT
    platform, OPKO is developing oligonucleotide therapeutics for rare orphan diseases;
    however, given its early stage, we have no revenue assumptions for this program.
    For OPKO’s diagnostic tests for AD and cancers, we forecast combined U.S.
    /EU sales of ~$300M and ~$500M, respectively (>2020). In preliminary tests,
    OPKO’s diagnostic test for AD and cancers detected ~95% of respective diseases. Given
    the yet-to-be proven simple blood-based diagnostic tests, we use a 60-65% probability for
    success. We expect validation study data for the most advanced test for Alzheimer’s
    disease (AD) in 1Q12; and validation studies for pancreatic and non-small cell lung
    cancers to begin in 2012. Similar to the BMY deal for the AD diagnostic test, we expect
    additional partnership opportunities from OPKO’s diagnostic pipeline. While regulatory
    and reimbursement hurdles remain, anticipated validation data, publications of the test’s
    clinical validity/utility, demonstrating an impact on treatment decision, we expect
    adoption among target physicians and payers will likely follow. We assume OPKO to use
    distributors to sell its diagnostic tests, booking revenue net of distributors’ share.
    Valuation
    Our $8 PT is based on a sum-of-parts NPV analysis, including a fair value of ~$1/sh for
    emerging market revenues, ~$3/sh for Claros’ PSA system, ~$3/sh for clinical diagnostic
    tests (AD, cancers), and ~$1 for rolapitant royalty from Tesaro. We forecast OPKO to turn
    profitable in 2015 and estimated YE11 cash of ~$80M to be sufficient into 2013.
    Risks
    Risks associated with OPK shares include, but are not limited to: (1) FDA’s stringent
    oversight of laboratory-developed tests (LDTs), requiring premarket approval (vs. CLIAcertified
    labs) leading to increased costs and delayed commercialization; (2) failure/delay
    in LDTs for AD and/or cancer; (3) potential restrictive use/unfavourable reimbursement for
    LDTs; and (4) general risks for the HC industry (e.g., competition, patent infringement,
    changes in regulatory and/or healthcare policies, pricing/reimbursement).
    page 3 of 26 Eun K. Yang, Ph.D. , Equity Analyst , (212) 284-2264 , eyang@jefferies.com
    Please see important disclosure information on pages 23 - 26 of this report.
    OPK
    Initiating Coverage
    November 10, 2011
    Overview of OPKO Health
    Headquartered in Miami, Florida, OPKO Health was founded by Dr. Phillip Frost from a
    three-way merger of Froptix Corporation (controlled by The Frost Group, LLC), Acuity
    Pharmaceuticals, and eXegenics on March 27, 2007. Since then, OPKO has engaged in
    opportunistic/strategic acquisitions, licenses and investments to create a broad and
    diversified portfolio, including emerging markets, clinical diagnostic tests, clinical-stage
    drugs, RNA-based therapeutic platform, and vaccines, as shown in Exhibit 1. With its
    management team with significant experience in identifying, executing and integrating
    such transactions, we expect OPKO to continue to pursue product/technology
    acquisitions and licenses, which will complement its existing businesses, provide new
    opportunities, and enhance its growth/profitability. Currently OPKO has ~200 full-time
    employees.
    Upcoming events for OPKO include: (1) results from diagnostic validation study for
    Alzheimer’s disease in 1Q12; (2) EU launch of Claros’ point-of-care PSA system in 1Q12;
    (3) data from 6-month study for Claros’ point-of-care PSA system (vs. current STD test) in
    2H12; (4) potential 510(k) approval of Claros’ point-of-care PSA system by YE12; (5)
    validation of first cancer diagnostic test (likely pancreatic cancer) in 2012/2013; (6) IND
    filing for first RNA-based therapeutic for Rett syndrome by YE12; (7) launch of Alzheimer’s
    disease diagnostic test as LDT in 2013; and (8) Phase 3 data for rolapitant for emesis by
    partner Tesaro in 2014.
    page 4 of 26 Eun K. Yang, Ph.D. , Equity Analyst , (212) 284-2264 , eyang@jefferies.com
    Please see important disclosure information on pages 23 - 26 of this report.
    OPK
    Initiating Coverage
    November 10, 2011
    Exhibit 1: OPKO’s Business Portfolio
    Source: Company reports and Jefferies & Company, Inc.
    Product Description Indication Status Marketing Rights
    Claros' Point-of-care System
    Prostate-specific
    antigen (NYSE:PSA)
    System
    Blood tes t us ing a smal l
    portable analyzer and
    di sposable cas sette
    Pros tate cancer CE Mark approval on 6/29/10; 6-month
    comparator s tudy (n=~300) began in 4Q11,
    with data in 2H12 and 510k fi l ing for U.S.
    approval by YE12
    OPKO
    Peptoid-based
    diagnostic tests in
    blood
    Broad antibody-based
    platform
    Al zheimer's di sease Val idation s tudy ongoing in 580 samples
    (200 AD, 200 demographical ly matched
    control s and 180 with other condi tions ),
    with resul ts in 1Q12 & potential launch as
    LDT in ~2013 & PMA approval in ~2014
    OPKO
    Various cancer Val idation s tudy to begin in 2012 for
    pancreatic and non-smal l cel l lung cancer;
    potential launch as LDTs in ~2014/2015
    Drug Discovery Platform (CURNA Rx, AntagoNAP Platform)
    Anti-antisense
    product
    Up-regulation of MeCP2
    gene
    Rett syndrome Precl inical ; IND fi l ing YE-2012 OPKO
    Anti-antisense
    product
    Up-regulation of SCN1A Dravet syndrome Precl inical OPKO
    Anti-antisense
    product
    Up-regulation of IDUA Mucopolysaccharidoses
    Type 1 (MPS-1)
    Precl inical OPKO
    Commercial
    LatAm Rx Emerging markets (Chi le,
    Mexico)
    Various Marketed OPKO
    Others
    Rolapitant Neurokinin 1 (NK1)
    subs tance P receptor
    (TACR1) antagoni s t
    Emes i s (CINV, PONV) Entering Phase 3 by YE11; launch in ~2015;
    long duration of action (5 days ) & no
    s igni ficant drug-drug interactions
    Outl icensed to
    TESARO
    SCH 900978 NK1 receptor antagoni s t Chronic cough Phase 2 ready (proof-of-concept
    completed); outl icens ing opportuni ty
    OPKO
    OPK-0018
    (oral, inhaled)
    Novel heparin-derived
    ol igosaccharide
    As thma, COPD Precl inical ; development s trategy update in
    mid-2012
    OPKO
    Vaccine Platform
    Universal flu
    vaccine
    Influenza Seasonal flu Precl inical ; Phase 1 may s ta rt 2H12 OPKO/
    Academia Sinica
    in Taiwan
    page 5 of 26 Eun K. Yang, Ph.D. , Equity Analyst , (212) 284-2264 , eyang@jefferies.com
    Please see important disclosure information on pages 23 - 26 of this report.
    OPK
    Initiating Coverage
    November 10, 2011
    Molecular Diagnostic Platform: A
    Simple Blood Test – New Approach to
    Discovery of Antibody Biomarkers
    In June 2009, exclusively licensed from University of Texas Southwestern (UTSW, in Dr.
    Thomas Kodadek’s laboratory), its proprietary antibody capture platform technology
    could potentially be broadly applicable for the discovery of disease-specific antibodies
    using synthetic molecules (antigen surrogate; peptoids) that capture them from the
    blood. Currently, OPKO is targeting neurodegenerative disorders where there is no
    definitive blood test or cancers where existing diagnostic approaches are invasive and
    inaccurate. Additional potential applicability of the technology includes development of
    highly targeted therapeutics and vaccines that can be delivered directly to the targeted
    autoimmune cells.
    The first diagnostic product OPKO is pursuing is a simple blood test for Alzheimer’s
    disease (AD), designed to detect elevated levels of antibodies that appear to be unique to
    AD. Potential utility of the AD test include (1) to stratify patients for clinical trials of
    potential Alzheimer’s drugs; (2) to confirm the diagnosis of AD in a clinical setting; and (3)
    to track the disease progression or effectiveness of a therapeutic in a clinical trial. In
    addition to AD, OPKO is also developing diagnostic tests for various cancers, including
    pancreatic and non-small cell lung cancer.
    With the recent publication in Cell (144, 132-142, January 7, 2011), titled “Identification
    of Candidate IgG biomarkers for Alzheimer’s Disease via Combinatorial Library
    Screening,” OPKO signed a non-exclusive collaboration with Bristol-Myers Squibb (BMY,
    $30.97, Buy) for its lead Alzheimer’s test where OPKO and Bristol-Myers Squibb are
    investigating the utility of OPKO's technology for diagnosis of Alzheimer's disease and for
    identifying individuals with early stage cognitive impairment that are likely to progress to
    Alzheimer's disease.
    UTSW filed six separate patent families on the screening/peptoid technology; one of the
    UTSW patent families has issued. OPKO also filed (and is filing) additional patent
    applications on both the screening methods and the specific peptoids that have affinity for
    biomarkers.
    According to the recent Myriad Genetics’ (MYGN, $20.43, Buy) presentation, the annual
    global molecular diagnostic market is projected to exceed $6 billion by 2015, with the
    largest U.S. market (42%), followed by Europe (33%) and ROW (25%).
    Acquisition of Claros Diagnostics’ Point-of-Care
    System
    Complementing OPKO’s non-invasive, simple blood diagnostic platform
    Claros Diagnostics (a privately held company) has a new point-of-care in vitro diagnostic
    system, designed to deliver rapid quantitative laboratory blood test results with ease-ofuse
    in bedside or physicians’ office from complex tests (e.g., immunoassays) from the
    centralized reference laboratory. Its system consists of disposable test cassettes and a
    small (desktop or handheld) analyser. OPKO plans to utilize this system to gain FDA
    approval via PMA (premarket approval) process for its in-development simple blood
    diagnostic tests for Alzheimer’s disease and cancers. In Europe, Claros as a company and
    its quality system are ISO 13485 certified, a key step in getting the Claros platform and
    PSA product CE Mark approval. Note that in Europe, ISO 13485 is used as the basis for
    page 6 of 26 Eun K. Yang, Ph.D. , Equity Analyst , (212) 284-2264 , eyang@jefferies.com
    Please see important disclosure information on pages 23 - 26 of this report.
    OPK
    Initiating Coverage
    November 10, 2011
    quality system compliance for two European Union (NYSEARCA:EU) regulations: the Medical Device
    Directive (NYSEARCA:MDD) and the In Vitro Diagnostics Directive (IVDD). With the ISO 13485
    certification, Claros expects additional diagnostic tests (AD, cancers, etc.), utilizing its
    platform, would require CE Mark approval.
    PSA System to be launched in 1Q12 in Europe; 510(k) filing in U.S. by YE12
    On June 29, 2011, Claros received CE Mark approval for its point-of-care PSA (prostatespecific
    antigen) system. OPKO/Claros plan to launch the PSA system in 1Q12 using a
    distributor. In the U.S., OPKO/Claros began a 6-month clinical study in ~300 subjects,
    comparing Claros’ PSA system (using finger stick blood) with current STD test (venous
    blood draw for centralized process) in 4Q11, with completion of the study in 1H12. We
    estimate OPKO/Claros to submit a 510(k) (premarket notification) to the FDA by YE12.
    Based on ~30M PSA tests currently performed per year in the U.S. and EU each (according
    to OPKO/Claros), we estimate ~$500M in peak annual sales in the U.S./EU, assuming 1%
    annual growth in # of tests performed, $40 per test and ~18% penetration at peak. Using
    ~65% of gross sales to OPKO (net of distributor), we forecast ~$323M in potential peak
    revenue to OPKO (in 2023) (Exhibit 6).
    Diagnostic test for Alzheimer’s Disease (AD)
    Proof-of-concept
    OPKO has identified AD-specific biomarkers (antigen surrogates or peptoids coined as
    ADP1, ADP2 and ADP3, up to 9 peptoids) from the blood samples of known Alzheimer’s
    disease patients that distinguish Alzheimer’s patients from age-matched healthy controls,
    patients with Parkinson’s disease and those with lupus. ADP1 and ADP3 bind antibodies
    distinct from those bound by ADP2; thus, two AD-specific auto-antibodies have been
    discovered.
    Validation study under way, with data expected in 1Q12
    OPKO is currently conducting a 580-patient sample study, involving 200 AD patient
    samples, 200 demographically matched controls and 180 with other conditions (with 140
    samples validated to date). OPKO expects full validation data to be available in 1Q12.
    For the 200 AD samples, ~25-30% of those are autopsy confirmed AD and the remainder
    of the samples is from preeminent AD treatment centers (e.g., May Jacksonville, a
    consortium between Einstein and Columbia Medical Centers) where the clinical diagnosis
    accuracy is ~90% (vs. ~70% in the general clinical diagnosis) as these tend to be more
    advanced cases and the patients undergo a fair amount of testing and scans at these
    centers. Thus, with regard to OPKO’s own sensitivity analysis, while there could be some
    variables other than from the autopsy confirmed, OPKO expects the test sensitivity would
    be still in the ~90% range.
    Two-pronged approach to commercialization
    OPKO is taking a two-pronged approach to commercializing its AD diagnostic test – (1) a
    CLIA-approved laboratory test where there is no further FDA requirement and (2) PMA
    process that requires further prospectively designed study data in a large sample size. We
    currently assume its AD diagnostic test to be available in ~2013 as a LDT and potential
    FDA approval in ~2014.
    In addition, similar to the BMS collaboration established in December 2010, OPKO plans
    to enter into additional agreements with several pharmaceutical companies to allow them
    page 7 of 26 Eun K. Yang, Ph.D. , Equity Analyst , (212) 284-2264 , eyang@jefferies.com
    Please see important disclosure information on pages 23 - 26 of this report.
    OPK
    Initiating Coverage
    November 10, 2011
    to screen patients for their clinical trials and as a possible companion diagnostic for
    monitoring the efficacy of their therapeutic versus the progression of the disease.
    Diagnostic tests for cancer
    OPKO’s diagnostic tests are designed to detect disease. This is different from genetic
    screening test that are designed to help determine an individual’s risk of developing a
    certain type of cancer (genetic screening for mutations; predictive test). From the
    preliminary studies, OPKO has found four peptoids (LCP1-4) that distinguish non-small
    cell lung cancer (NSCLC) patients and four peptoids (PCP1-4) that distinguish Stage 1
    pancreatic cancer patients. OPKO expects at least 90% sensitivity tests for these cancers
    ready by end-2011 and to begin a validation study of an initial cancer diagnostic test in
    2012. We currently assume availability of three cancer diagnostic tests in 2014-2016.
    CLIA vs. FDA Routes
    Currently the FDA does not regulate laboratory developed tests (LDTs), thus there is no
    requirement for undergoing the approval process, such as 510(k) or PMA; and these tests
    are allowed to be carried out in the CLIA-certified labs. Without the FDA’s direct oversight
    as in the case with the 510(k) or PMA processes, tests can come to market faster and at
    lower development costs. A majority of laboratory-developed tests (LDTs) are CLIAcertified
    and utilized only in CLIA-certified laboratories, while some obtained FDA
    approval via premarket approval application (NYSEARCA:PMA) process (e.g., companion diagnostics
    such as Vysis ALK Break Apart FISH Probe test for XALKORI (crizotinib), the cobas 4800
    BRAF V600 Mutation Test for Zelboraf). In the near term, the FDA will likely continue to
    place greater scrutiny on the use of LDTs.
    The Clinical Laboratory Improvement Amendments of 1988 (CLIA) imposes quality
    standards for laboratory testing to ensure the accuracy, reliability and timeliness of
    reporting patient test results. CLIA-certified laboratories are typically subject to inspection
    every two years to assess compliance with program standards. However, recently the FDA
    started reviewing the regulatory requirements that will apply to LDTs, and held a two-day
    public meeting on July 19-20, 2010 to gather input for the effective regulatory framework
    for LDTs. Although the FDA did not indicate when or how those changes would be
    implemented, it left little doubt that the changes are forthcoming. Compliance with the
    FDA’s potential LDT regulation could be costly and delay future product launches.
    Reimbursement for LDTs
    Almost all molecular diagnostic tests are currently reimbursed under the Clinical Lab Fee
    Schedule (CLFS) using either a miscellaneous and a negotiated pricing, or a procedure
    code (to determine what and if a laboratory will be paid for any given test or procedure).
    In the CLFS scheme, a dollar value of reimbursement is assigned to every CPT code; in PFS
    (physician fee schedule), each physician service is divided into three components
    (physician work, practice expense, and malpractice expense). We assume OPKO will have
    value-based price negotiation capability, with publications of peer-reviewed literature
    demonstrating clinical utility. With the FDA’s upcoming LDT regulation, the AMA’s CPT
    coding initiative as primarily a means to solve inconsistent claim processing and
    reimbursement levels.
    page 8 of 26 Eun K. Yang, Ph.D. , Equity Analyst , (212) 284-2264 , eyang@jefferies.com
    Please see important disclosure information on pages 23 - 26 of this report.
    OPK
    Initiating Coverage
    November 10, 2011
    Market Opportunities for OPKO’s Clinical
    Diagnostic Tests (AD, Cancer)
    Currently it is estimated that over 5 million people in the United States and over 35
    million people worldwide have Alzheimer’s disease (AD). In the U.S. alone, national costs
    of caring for people with AD and other dementias are estimated to be $172 billion in
    2010. Currently there are no specific tests to detect Alzheimer’s disease and follow its
    progression. Current diagnosis tools for AD (i.e., behavioural and cognitive
    measurements, brain scans and spinal fluid analysis) have limited diagnostic accuracy and
    may not detect early stage disease/can be invasive. Definitive diagnosis can currently be
    made only from examination of post-mortem brain tissue samples. Thus, an effective early
    diagnostic blood test would provide a significant breakthrough in supporting definitive
    early diagnosis.
    We currently view the significant value of the AD test as potential partnership
    opportunities with drug companies, allowing them to utilize the test for screening
    patients for clinical trials for AD drug development and to develop it as a companion
    diagnostic. While these opportunities could be lucrative long term, the timing and scope
    of such partnership opportunities are highly variable, thus, we currently do not have any
    assumptions for potential partnership/royalty revenues. For Alzheimer’s disease (AD), we
    assume commercial availability of the test in 2013 using distributors and modest sales
    revenue assumptions as we view the clinical utility of the test detecting AD is somewhat
    limited owing to a dearth of effective treatment options. Based on the AD incidence of
    ~460K in the U.S., we assume ~19% penetration at peak, translating into $135M in 2023
    sales in the U.S. (assuming $1,500 per test), with ~$175M in EU (Exhibit 7).
    For cancer, we assume commercial availability of the test for pancreatic cancer in 2014,
    non-small cell lung cancer (NSCLC) in 2015, and colorectal cancer in 2016. We assume an
    estimated cost per test at $3,000 and peak annual penetration rate of ~25%. For
    pancreatic cancer, on the incidence of ~37K in the U.S., we forecast peak sales of $31M
    reaching in 2023. For non-small cell lung cancer (NSCLC), on the incidence of ~177K in
    the U.S., we forecast peak sales of $148M in 2023. For colorectal cancer, on the incidence
    of ~180K in the U.S., we forecast sales of $151M in 2023. Combined, we forecast these
    cancer diagnostic tests to generate ~$329M in 2023 in the U.S. and ~$214M in Europe,
    with total peak annual sales of ~$544M (Exhibit 8).
    AntagoNAT Platform for
    Oligonucleotide Therapeutics
    In February 2011, OPKO acquired CURNA, a privately held company with RNA-based
    technology. CURNA's technology utilizes short, single-strand oligonucleotides to upregulate
    protein production through interference with non-coding RNA's (natural
    antisense). This is in contrast to most of its competitors in the field of oligonucleotide
    therapeutics (short interfering RNA (siRNA) or silencing RNA), designed to down-regulate
    the expression of a specific gene/protein production) (Exhibit 2). Through its AntagoNAT,
    CURNA has validated this approach for up-regulation of several therapeutically relevant
    proteins (e.g., MeCP2 for Rett syndrome, SIRT1 for obesity, ApoA-1 for
    hypercholesterolemia) and patented molecules that increase the production of over 90
    key proteins involved in various diseases (e.g., orphan/rare diseases, cancers,
    cardiovascular, diabetes, Alzheimer’s).
    page 9 of 26 Eun K. Yang, Ph.D. , Equity Analyst , (212) 284-2264 , eyang@jefferies.com
    Please see important disclosure information on pages 23 - 26 of this report.
    OPK
    Initiating Coverage
    November 10, 2011
    Utilizing the technology, OPKO is focusing on developing therapies for orphan
    indications. For example, Rett syndrome is an inherited neurodevelopmental disorder (an
    autism spectrum disorder), caused by mutations in the X-linked gene MeCP2 (methyl-
    CpG binding protein 2) in neurons. In a mouse model, up-regulation of MeCP2 gene
    expression led to a striking loss of advanced neurological symptoms in both immature
    and mature adult animals. According to the Rett Syndrome Research Trust, there are
    approximately 16,000 cases in women and children in the U.S. (incidence of ~1 in 10,000-
    23,000 live female births). However, because Rett syndrome is often misdiagnosed as
    autism or cerebral palsy, these estimates may under-represent the actual number.
    Current treatment options address the symptoms of the disease, such as seizures,
    constipation, scoliosis as well as physical therapy to help maintain mobility while trying to
    reduce deformed spine and limbs. OPKO plans to file an IND for Rett syndrome at yearend
    2012.
    In May 2011, OPKO was awarded a grant from the Dravet Syndrome Foundation for a
    drug development from the AntagoNAT platform for Dravet Syndrome (also known as
    Severe Myoclonic Epilepsy of Infancy [SMEI]), a rare genetic disorder causing severe
    epilepsy in infants (~75% have a mutation in the SCN1A gene, known as the sodium
    channel, voltage-gated, type I, alpha subunit). It is estimated that there are ~15,350 in the
    United States. In September 2011, OPKO was also awarded a grant from University of
    Pennsylvania to develop a therapy for a rare genetic disease known as
    mucopolysaccharidosis Type I (MPS-I), characterized by deficiency of the lysosomal
    enzyme alpha-L-iduronidase (IDUA), which can lead to organ damage (incidence of ~1 in
    100,000 births).
    Given the early stage of development, currently we do not have any revenue assumptions
    for potential AntagoNAT platform-derived products.
    page 10 of 26 Eun K. Yang, Ph.D. , Equity Analyst , (212) 284-2264 , eyang@jefferies.com
    Please see important disclosure information on pages 23 - 26 of this report.
    OPK
    Initiating Coverage
    November 10, 2011
    Exhibit 2: Selected Companies with RNA-based Therapeutics
    Source: Company reports and Jefferies & Company, Inc.
    Rolapitant for CINV Entering Phase 3,
    Partnered with Tesaro
    On December 14, 2010, OPKO out-licensed rolapitant (IV, oral) to Tesaro (a private
    oncology-focused company formed by three former senior executives of MGI Pharma,
    which was acquired by Eisai ( 085, Underperform) in 2008). Rolapitant is a
    neurokinin 1 (NK1) substance P receptor (TACR1) antagonist, expected to begin enrolling
    Phase 3 study for chemotherapy-induced nausea and vomiting (CINV) in 4Q11. The only
    other marketed TACR1 antagonist is Emend from Merck (MRK, $33.79, Buy), with $378M
    in 2010 sales. However, Emend can increase toxicity of chemotherapy agents that are
    metabolized by CYP3A4 (e.g., docetaxel, paclitaxel, etoposide, irinotecan, isfosfamide,
    vinorelbine, vinblastine and vincristine) as it inhibits cytochrome P450 3A4 (CYP3A4). To
    date, rolapitant has not shown any interaction with CYP3A4. Phase 2 studies in prevention
    of chemotherapy-related vomiting and nausea demonstrated a long duration of action
    (single dose providing 5 days activity) and no significant drug-drug interactions.
    Composition of matter patent expiry for rolapitant is ~2026.
    Company Lead Product Stage Targeted Indication Proprietary Technology
    Mipomersen
    MAA filed on 7/28/11;
    NDA filing in 4Q11
    Familial hypercholesterolemia (NASDAQ:FH)
    ~24 other products Phase 1/2; preclinical
    Cardiovascular, metabolic, cancer,
    inflammation, neurodegenerative, and
    others
    ALN-RSV01 Phase 2b
    Respiratory Syncytial Virus (RSV)
    Infection
    ALN-TTR01/ALN-VSP Ready for Phase 2
    Transthyretin-mediated amyloidosis
    (ATTR)/liver cancer
    AVI-4658 Phase 2 Duchenne muscular dystrophy (NYSE:DMD)
    AVI-7100/6002/6003 Phase 1 Influenza/Ebola/Marburg virus
    Marina Biotech
    CEQ508 Phase 1b/2a Familial Adenomatous Polyposis (FAP)
    Employs two RNAi platforms to down-regulate
    expression of disease-causing proteins - TauRNAi
    (combination of UsiRNA technology for the construction
    of small interfering RNA (siRNA) and novel dialkylated
    amino acid-based liposome (DiLA2) delivery system)
    and TransKingdom RNAi (tkRNAi; an expressed RNA in a
    bacterial delivery system); offering flexibility to
    optimize oral, systemic and local delivery of RNAibased
    therapies
    TKM-ApoB Phase 1 Hypercholesterolemia
    TKM-PLK1 Phase 1 Cancer
    OPKO
    (OPK)
    Undisclosed Preclinical Rett syndrome (up-regulation of MeCP2)
    Short, single-stranded modified oligonucleotides to upregulate
    one gene (mRNA) at a time
    RXi
    (NASDAQ:RXII)
    (sd-rxRNA candidates) Preclinical Anti-scarring, retinal disorders
    "Self-delivering" RNAs (no delivery vehicle) through
    modification of the oligonucleotides. Comprised of a
    single-stranded phosphorothioate region, a short
    duplex region, and nuclease-stabilizing and lipophilic
    chemical modification
    MAA: marketing authorization application in EU; NDA: new drug application in the U.S.
    Tekmira
    (TKMR)
    Lipid nanoparticle delivery (LNP) technology
    ISIS
    Antisense single-stranded RNAi technology (licensed to
    ALNY)
    Alnylam
    (NASDAQ:ALNY)
    Lipid nanoparticle delivery (LNP) for systemic RNAi;
    chemical modifaction of sugar and/or backbone
    AVI Biopharma
    Phosphorodiamidate morpholino oligomer (NYSE:PMO)
    antisense technology (vs. siRNA) targets both mRNA and
    precursor mRNA to either down-regulate or up-regulate
    targeted genes or proteins (i.e., turn “on” or turn “off”
    production of a target protein)
    page 11 of 26 Eun K. Yang, Ph.D. , Equity Analyst , (212) 284-2264 , eyang@jefferies.com
    Please see important disclosure information on pages 23 - 26 of this report.
    OPK
    Initiating Coverage
    November 10, 2011
    Under the deal terms, OPKO is eligible for payments of up to $121M, including an upfront
    payment of $6M received in December 2010 and potential milestone payments
    ($5M for NDA acceptance by the FDA; $15M for U.S. sales; $10M for EU sales; $85M for
    net sales in excess of $150M, $300M and $500M), in addition to double digit tieredroyalties
    on sales. Tesaro and OPKO will share future profits from the commercialization of
    licensed products in Japan and OPKO will have the option to market these products in
    Latin America. In addition, OPKO has acquired a 10% equity position in Tesaro. Originally,
    OPKO acquired rolapitant and other assets relating to the NK-1 receptor antagonist
    program (SCH900978 for cancer-related indications) from Schering-Plough Corporation
    on October 12, 2009, for $2M in cash, with potential development milestone obligations
    of an additional $27M.
    As shown in Exhibit 3, NK-1 receptor antagonists and 5HT3 receptor antagonists are major
    classes of drugs used for prevention of nausea and vomiting. In general, NK-1 inhibitors
    are complementary to 5HT3 inhibitors with the potential for additive effects in PONV and
    CINV. While there are several approved 5HT3 receptor antagonists, including
    palonosetron (Aloxi), ondansetron (Zofran), and other generics, there is only one NK-1
    receptor antagonist approved for commercial use, aprepitant (Emend). In collaboration
    with the Tesaro team, with a demonstrated track record of successfully developing and
    launching Aloxi while at MGI Pharma, we view the partnership as highly promising.
    Tesaro is initially pursuing development and commercialization of rolapitant for CINV.
    Market Opportunities for Rolapitant in CINV
    We forecast that rolapitant will be on the market in 2015 in the United States and Europe.
    In the U.S. and EU, we assume OPKO receiving ~15% royalties on sales by Tesaro. We
    estimate the global emesis market at $2B+. There are more than two million
    chemotherapy patients each year in the United States, Europe, and Japan alone, and there
    are more than 23 million surgery patients in the United States and Europe.
    As shown in Exhibit 9, for CINV, we estimate the target population to be approximately ~1
    million in the U.S., representing a current market size of ~$3.5 billion (based on our
    estimated $3,500 per patient per course of therapy). Assuming a 6% market penetration
    in the United States in 2023, we forecast U.S. peak annual sales potential of ~$227M. In
    the EU, we estimate the target population to be approximately ~1.3 million, representing
    a current market size of ~$4.5 billion (we assume similar pricing to U.S.). Assuming a 6%
    market penetration in EU in 2023, we forecast EU peak annual sales potential of
    approximately $295M, and U.S. /EU peak sales potential of ~$522M in 2023, with ~$78M
    in royalties to OPKO.
    page 12 of 26 Eun K. Yang, Ph.D. , Equity Analyst , (212) 284-2264 , eyang@jefferies.com
    Please see important disclosure information on pages 23 - 26 of this report.
    OPK
    Initiating Coverage
    November 10, 2011
    Exhibit 3: Chemotherapy-Induced (CINV) and Post-Operative Nausea and Vomiting (PONV)
    Source: Clinicaltrials.gov, company reports, and Jefferies & Company, Inc.
    OPKO’s Emerging Markets
    In October 2009 and February 2010, OPKO acquired pharmaceutical businesses in Chile
    and Mexico, for $16M and $3.5M, respectively. As emerging markets represent highgrowth
    therapeutic segments, we expect OPKO to continue to expand its presence in
    South America. OPKO Chile (Pharma Genexx, S.A) has seen rapidly increasing sales from
    >100 products in multiple therapeutic areas including cardiovascular products,
    antibiotics, gastro-intestinal products and hormones. In 3Q11, OPKO Chile revenues were
    to ~$5.4M ($6.5M in 2Q11, -17% q/q; ~$4.5M in 3Q10, +20% y/y).
    Mexico is the second largest Latin American pharmaceutical market and one of the top 15
    largest markets globally in 2009. OPKO Mexico (Pharmacos Exakta S.A. de C.V.) has >25
    products (primarily branded generics with expanding proprietary focus). Pharmacos
    Exakta has a vaccine development program, with an expected launch of a H1N1 flu
    vaccine in 2012. On June 7th, 2011, OPKO received research grants from the Mexican
    National Technology and Science Council (~$1M) for research projects in ophthalmology,
    infectious disease, and oncology.
    Combined, OPKO Chile and OPKO Mexico generated ~$22M in sales in 2010, making up
    73% of total sales. For 2011, we estimate $29M in sales (+32% y/y); and in 2013 and
    beyond, we assume a growth rate of 15%. According to IMS Health, emerging healthcare
    markets, including Chile and Mexico, are projected to grow ~15% in total per year
    through 2014, while developed markets are only projected to grow 3-5% over the same
    period. Based on a projected 4-year CAGR of 20% from 2010-2014, sales could reach
    ~$45M by 2014. OPK’s growing emerging markets platform should continue to be a large
    Product Company Status 2010 Sales
    Aloxi (palonosetron) Eisai Pharma/MGI Pharma Marketed ~$400M
    Zofran (ondansetron) GSK Marketed generic
    Kytril (granisetron) Roche Marketed <$100M
    Anzemet (dolasetron) Sanofi-aventis Marketed N/A
    Navoban (tropisetron) Novartis Marketed OUS N/A
    TRG (intanasal granisetron) Shin Nippon Biomedical Labs Phase 2/3 N/A
    Emend (aprepitant)/(fosaprepitant IV) Merck Marketed $378M
    Rezonic/Zunrisa (casopitant) GSK CRL, discontinued N/A
    Rolapitant Tesaro/Opko Entering Phase 3 N/A
    Vestipitant GSK Phase 2 N/A
    Marinol (dronabinol) Solvay Pharma Marketed generic
    Cesamet (nabilone) Meda Pharma Marketed N/A
    Neurontin (gabapentin) Pfizer Phase 3 N/A
    5-HT3 (serotonin type 3 receptor); NK1 (neurokinin 1 receptor); CB1/2 (cannabinoid receptor)
    5-HT3 receptor antagonist
    NK1 receptor antagonist
    CB1/2 receptor agonist
    Other
    page 13 of 26 Eun K. Yang, Ph.D. , Equity Analyst , (212) 284-2264 , eyang@jefferies.com
    Please see important disclosure information on pages 23 - 26 of this report.
    OPK
    Initiating Coverage
    November 10, 2011
    part of their business strategy, contributing revenue growth and cash flow to bolster R&D
    efforts.
    Others
    OPKO’s Protein Vaccine Platform
    On July 20, 2009, OPKO entered into a worldwide exclusive license agreement with
    Academia Sinica in Taipei, Taiwan, for a new technology to develop protein vaccines
    against influenza and other viral infections. The global seasonal influenza market is
    projected to be >$6 billion by 2014. Limitations of current influenza vaccines include
    inadequate protection (inability to respond to mutations) and inefficient seasonal
    development and production timelines. OPKO is developing a universal flu vaccine, a
    modified protein that can increase antibody protection against various strains of viral
    infection (both seasonal influenza strains as well as global influenza pandemic strains,
    such as swine flu (H1N1), and avian flu [H5N1]), which may enter clinical testing by YE12.
    In addition, the recombinant protein enables faster development and efficient year-round
    and demand-based production.
    As shown in Exhibit 4, there are multiple companies attempting to develop a universal
    vaccine, thus, we view competition as high and currently do not have any revenue
    assumptions for this program.
    OPKO’s Respiratory Therapeutics – Out-licensing
    Opportunity
    Currently OPKO has two products – SCH 900978 for chronic cough ready for Phase 2 and
    OPK-0018 for asthma and COPD in pre-clinic. SCH 900978 is an NK-1 receptor antagonist
    (follow-on product to rolapitant). Partner Tesaro has the rights to the product for
    developing for CINV/PONV and other cancer-related indications, while OPKO retains for
    other indications such as chronic cough. OPK-0018 is a novel heparin-derived
    oligosaccharide licensed by OPK in May 2010, with anti-inflammatory and anti-allergic
    activity demonstrated in animal models. In 2009, sales for asthma/COPD products
    totalled ~$26 billion with 34M patients treated (~$765 per patient). OPK-0018 is unique
    in that it can be administered orally or through inhalation. Leading currently available
    treatments for asthma, such as leukotriene receptor antagonist (LTRA) Singulair, often
    induce unwanted side effects, and are only administered orally. For these two drug
    candidates, we view them as potential out-licensing opportunities and currently do not
    have any revenue assumption.
    page 14 of 26 Eun K. Yang, Ph.D. , Equity Analyst , (212) 284-2264 , eyang@jefferies.com
    Please see important disclosure information on pages 23 - 26 of this report.
    OPK
    Initiating Coverage
    November 10, 2011
    Exhibit 4: Selected Universal Flu Therapeutic Agents in Development
    Source: Company reports and Jefferies & Company, Inc.
    OPKO’s Strategic Investments
    Since 2009, OPKO has made strategic investments in early-stage, private companies for
    their proprietary technologies that could provide significant upside potential. We expect it
    may continue to make investments in other early-stage companies (Exhibit 5).
    Exhibit 5: OPKO's Strategic Investments
    Source: Company reports and Jefferies & Company, Inc.
    Product Company Status Description
    Marketing
    Rights
    Multimeric-001 BiondVax
    Pharmaceutical
    Phase 2b began in
    10/11
    Immunostimulant BiondVax
    N8295 Dynavax Planning proof-ofconcept
    Phase 2 in
    1H12
    TLR9-agonist + M2e +
    nucleoprotein (NYSE:NP)
    Dynavax
    Technologies
    VAX102 VaxInnate Phase 1/2 complete TLR5-agonist + M2e VaxInnate
    FP01 Immune Targeting
    Systems
    Phase 1 T-cell Immunostimulant Immune
    Targeting
    Systems
    SFV2 Variation
    Biotechnologies
    Canada
    Preclinical Multi-variant, multiinfluenza
    strain, Variocyte
    technology
    Variation
    Biotech
    ACAM-FLU-A Sanofi Aventis Preclinical M2e antagonist Sanofi Aventis
    VGX-3510 Inovio
    Pharmaceuticals
    Preclinical Hemagglutinin-antagonist,
    multi-variant, multiinfluenza
    strain, using
    SynCon process
    Inovio
    Universal flu vaccine Bionor Immuno Preclinical M2e and Neuraminidase
    antagonist
    Bionor Immuno
    flu-mAB Crucell Preclinical Immunostimulant/
    monoclonal antibody
    Ortho-McNeil-
    Janssen
    Epitope Identification
    System (NYSEARCA:EIS) Vaccine
    Vax-Onco Preclinical Immunostimulant Ichor Medical
    Systems
    Company Effective Date
    OPKO's Current
    Equity Interest
    Technology
    CoCrystal Discovery September 21, 2009 ~16%
    New approach to develop broadspectrum
    anti-virals, founded by Nobel
    laureate RogerKornberg, Ph.D.
    Sorrento Therapeutics June 10, 2009 ~21%
    New technology to produce human
    monoclonal antibodies libraries that
    are more complete and efficient
    Fabrus November 4, 2010 ~13%
    Next-gen technology to identify
    therapeutic antibody targets
    Tesaro December 14, 2010 ~10%
    Oncology-focused company founded by
    former executives fo MGI Pharma;
    OPKO's partner for rolapitant
    page 15 of 26 Eun K. Yang, Ph.D. , Equity Analyst , (212) 284-2264 , eyang@jefferies.com
    Please see important disclosure information on pages 23 - 26 of this report.
    OPK
    Initiating Coverage
    November 10, 2011
    Management Team
    OPKO’s board of directors is comprised of six outsiders and three insiders, including
    Phillip Frost, M.D., CEO and Chairman of OPKO Health; Jane H. Hsiao, Ph.D., Vice-
    Chairman and Chief Technical Officer of OPKO Health; Steven D. Rubin, Executive VP of
    Administration and Director; Robert A. Baron, a Director of Hemobiotech, Andover
    Medical, and Nanosensors; Thomas E. Beier, former CFO of IVAX Corporation (1997-
    2007); Richard A. Lerner, M.D., President of The Scripps Research Institute; John A.
    Paganelli, Chairman of the Board of Pharos Systems International, an investment
    company; Richard C. Pfenniger, Jr., a Director of GP Strategies Corporation and SafeStitch
    Medical; and Alice Lin-Tsing Yu, M.D., Ph.D., Associate Director at the Genomics Research
    Center, Academia Sinica, in Taiwan.
    Phillip Frost, M.D. - Chief Executive Officer, Chairman of the Board
    Dr. Frost became the CEO and Chairman of OPKO Health upon the merger of Acuity
    Pharmaceuticals, Froptix Corporation and eXegenics on March 27, 2007. Dr. Frost is the
    Chairman of the Board of Teva Pharmaceutical (TEVA, $40.58, Hold) (since March 2010)
    and was Vice Chairman since January 2006. He was Chairman of the Board of Directors
    and CEO of IVAX Corporation since 1987, which he sold to Teva in 2005. He was
    Chairman of the Department of Dermatology at Mt. Sinai Medical Center of Greater
    Miami, Miami Beach, Florida (1972-1986); and Chairman of the Board of Directors of Key
    Pharmaceuticals until its acquisition by Schering Plough Corporation in 1986. He is
    currently a director of Ladenburg Thalmann, Chairman of the Board of Directors of
    PROLOR Biotech, a member of the Board of Trustees of the University of Miami, a Trustee
    of the Scripps Research Institute, a director of Castle Brands and Continucare Corporation.
    Jane H. Hsiao, Ph.D. - Vice-Chairman and Chief Technical Officer
    Prior to OPKO, Dr. Hsiao served as Vice Chairman-Technical Affairs (1995-2006); as
    Chairman, CEO and president of IVAX Animal Health; and as chief regulatory officer
    (1992-1995) of IVAX. Dr. Hsiao is Chairman of the Board of Safestitch Medical and Non-
    Invasive Monitoring Systems; and a director of Modigene and Neovasc.
    Steven D. Rubin - Executive Vice President of Administration
    Prior to OPKO, Mr. Rubin was Senior VP, General Counsel and Secretary of IVAX (2001-
    2006), Senior VP, General Counsel and Secretary with privately held Telergy (2000-2001),
    a counsel at the Miami law firm of Stearns Weaver Miller Weissler Alhadeff & Sitterson
    (1986-2000). Mr. Rubin is currently a director of Dreams, Safestitch Medical, Modigene,
    Kidville, Non-Invasive Monitoring Systems, Cardo Medical, Castle Brands and Neovasc.
    Rao Uppaluri, Ph.D. - Senior Vice President and Chief Financial Officer
    Prior to OPKO, Dr. Uppaluri was VP of Strategic Planning and Treasurer of IVAX (1997-
    2006), Senior VP, Senior Financial Officer and CIO at Intercontinental Bank (1987-1996),
    Senior VP, CIO and Controller at Peninsula Federal Savings & Loan Association (1983-
    1987). Dr. Uppaluri currently is a director of Ideation Acquisition Corp., Kidville , Cardo
    Medical, Non-Invasive Monitoring Systems, and Winston Pharmaceuticals.
    page 16 of 26 Eun K. Yang, Ph.D. , Equity Analyst , (212) 284-2264 , eyang@jefferies.com
    Please see important disclosure information on pages 23 - 26 of this report.
    OPK
    Initiating Coverage
    November 10, 2011
    Financial Projections and Analysis
    With the recent equity raise, we estimate OPKO’s YE11 cash of ~$80M, which should be
    sufficient to fund operations well into 2013 by our estimates.
    Revenues
    In 2010, OPKO generated ~$37M in total revenue, including ~$22M from emerging
    markets and ~$8M from its legacy instrumentations business and ~$7M in upfront fee
    from Tesaro for the rolapitant licensing agreement in December 2010. With the sale of its
    instrumentations business to OPTOS (OPTS LN, £2.19, Buy) for $17.5M in October 2011,
    we expect no revenue from this segment starting in 2012. For 2012 and beyond, we
    assume 15% y/y growth in emerging market sales; and we forecast sales revenue to start
    from Claros’ point-of-care PSA system in Europe (net of distributor’s share), resulting in
    ~$35M in 2012 and ~$49M in 2013. Starting 2013 through 2016, we assume market
    launches of OPKO’s clinical diagnostic tests (Alzheimer’s disease, pancreatic cancer,
    NSCLC, colorectal cancer). In addition, starting 2015, we expect OPKO to receive royalty
    revenue on rolapitant sales by Tesaro. We estimate total revenue of ~$85M in 2014,
    ~$192M in 2015 and ~$376M in 2016, with a 5-year CAGR of 39% (2010-2015). We
    expect OPKO to reach profitability in 2015.
    Expenses
    With anticipated increases in R&D activities from diagnostics and therapeutics businesses,
    we estimate R&D spending to be ~$24M (+80% y/y) in 2012 and ~$34M in 2013 (+40%
    y/y) with anticipated initiation of clinical development for the products from the
    AntagoNAP platform. For commercialization of its diagnostic products, we expect OPKO
    to utilize distributors and book sales revenue net of distributors’ share (~65% of sales to
    OPKO). For SG&A expenses, we estimate ~$37M in 2012 (+60% y/y; significant increase
    due to the acquisition of Claros in Woburn, MA) and ~$42M in 2013 (+15%y/y).
    Valuation
    Our $8 PT is based on a sum-of-parts NPV analysis of OPKO. Using an annual discount
    rate of ~10%, our analysis assigns a fair value of ~$1/sh for emerging market revenues (a
    100% probability on peak sales of $106M in 2023), ~$3/sh for Claros’ PSA system (an
    80% probability on peak sales of $323M in 2023), ~$3/sh for clinical diagnostic tests (a
    60-65% probability on peak sales of ~$547M in 2023), and ~$1 for rolapitant royalty from
    Tesaro (a 75% probability on peak royalty revenue of $78M in 2023).
    page 17 of 26 Eun K. Yang, Ph.D. , Equity Analyst , (212) 284-2264 , eyang@jefferies.com
    Please see important disclosure information on pages 23 - 26 of this report.
    OPK
    Initiating Coverage
    November 10, 2011
    Exhibit 7: Revenue Projections for Alzheimer's Disease Diagnostic Test
    Source: Company reports and Jefferies & Company, Inc.
    Exhibit 6: Revenue Projections for Claros' Point-of-care PSA System
    Source: Company reports and Jefferies & Company, Inc.
    page 18 of 26 Eun K. Yang, Ph.D. , Equity Analyst , (212) 284-2264 , eyang@jefferies.com
    Please see important disclosure information on pages 23 - 26 of this report.
    OPK
    Initiating Coverage
    November 10, 2011
    Exhibit 8: Revenue Projections for Cancer Diagnostic Test
    Source: Company reports and Jefferies & Company, Inc.
    page 19 of 26 Eun K. Yang, Ph.D. , Equity Analyst , (212) 284-2264 , eyang@jefferies.com
    Please see important disclosure information on pages 23 - 26 of this report.
    OPK
    Initiating Coverage
    November 10, 2011
    Exhibit 9: Revenue Projections for Rolapitant for CINV
    Source: Company reports and Jefferies & Company, Inc.
    page 20 of 26 Eun K. Yang, Ph.D. , Equity Analyst , (212) 284-2264 , eyang@jefferies.com
    Please see important disclosure information on pages 23 - 26 of this report.
    OPK
    Initiating Coverage
    November 10, 2011
    Exhibit 10: OPKO Health's Income Statement
    Source: Company reports and Jefferies & Company, Inc.
    page 21 of 26 Eun K. Yang, Ph.D. , Equity Analyst , (212) 284-2264 , eyang@jefferies.com
    Please see important disclosure information on pages 23 - 26 of this report.
    OPK
    Initiating Coverage
    November 10, 2011
    Exhibit 11: OPKO Health’s Balance Sheet and Cash Flow Statement
    Source: Company Reports and Jefferies & Company, Inc.
    page 22 of 26 Eun K. Yang, Ph.D. , Equity Analyst , (212) 284-2264 , eyang@jefferies.com
    Please see important disclosure information on pages 23 - 26 of this report.
    OPK
    Initiating Coverage
    November 10, 2011
    Company Description
    Headquartered in Miami, Florida, OPKO Health was founded by Dr. Phillip Frost from a three-way merger of Froptix Corporation (controlled by
    The Frost Group, LLC), Acuity Pharmaceuticals, and eXegenics on March 27, 2007. Since then, OPKO has engaged in opportunistic/strategic
    acquisitions, licenses and investments to create a broad and diversified portfolio, including molecular diagnostics, pharmaceuticals, vaccines
    and high-growth emerging markets – ranging from revenue-generating emerging market segment to preclinical-stage drug discovery/
    development. Dr. Frost is the Chairman of the Board of Teva Pharmaceutical since March 2010. He was Chairman of the Board of Directors
    and CEO of IVAX Corporation since 1987, which he sold to Teva in 2005.
    Analyst Certification
    I, Eun K. Yang, Ph.D., certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and
    subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations
    or views expressed in this research report.
    I, Eileen Flowers, Ph.D., certify that all of the views expressed in this research report accurately reflect my personal views about the subject
    security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific
    recommendations or views expressed in this research report.
    As is the case with all Jefferies employees, the analyst(s) responsible for the coverage of the financial instruments discussed in this report receives
    compensation based in part on the overall performance of the firm, including investment banking income. We seek to update our research as
    appropriate, but various regulations may prevent us from doing so. Aside from certain industry reports published on a periodic basis, the large majority
    of reports are published at irregular intervals as appropriate in the analyst's judgement.
    James Dodwell owns shares of Bristol-Myers Squibb common stock.
    James Dodwell owns shares of Bristol-Myers Squibb common stock.
    An individual involved in the preparation of this report owns shares of Merck & Co. common stock.
    An individual involved in the preparation of this report owns shares of merck & Co. common stock.
    Jefferies acted as advisor to Rules Based Medicine Inc. in connection with the aquisition of the company by Myriad Genetics Inc as announced on
    April 27th, 2011.
    Jefferies International Limited acts as Joint Corporate Broker and Joint Financial Advisor to Optos Plc.
    Within the past 12 months, Jefferies Group, Inc, its affiliates or subsidiaries has received compensation from investment banking services from Opko
    Health, Inc..
    Jefferies Group, Inc, its affiliates or subsidiaries has acted as a manager or co-manager in the underwriting or placement of securities for Opko Health,
    Inc. or one of its affiliates within the past twelve months.
    For Important Disclosure information on companies recommended in this report, please visit our website at javatar.bluematrix.com/sellside/
    Disclosures.action or call 212.284.2300.
    Meanings of Jefferies Ratings
    Buy - Describes stocks that we expect to provide a total return (price appreciation plus yield) of 15% or more within a 12-month period.
    Hold - Describes stocks that we expect to provide a total return (price appreciation plus yield) of plus 15% or minus 10% within a 12-month period.
    Underperform - Describes stocks that we expect to provide a total negative return (price appreciation plus yield) of 10% or more within a 12-month
    period.
    The expected total return (price appreciation plus yield) for Buy rated stocks with an average stock price consistently below $10 is 20% or more within
    a 12-month period as these companies are typically more volatile than the overall stock market. For Hold rated stocks with an average stock price
    consistently below $10, the expected total return (price appreciation plus yield) is plus or minus 20% within a 12-month period. For Underperform
    rated stocks with an average stock price consistently below $10, the expected total return (price appreciation plus yield) is minus 20% within a 12-
    month period.
    NR - The investment rating and price target have been temporarily suspended. Such suspensions are in compliance with applicable regulations and/
    or Jefferies policies.
    CS - Coverage Suspended. Jefferies has suspended coverage of this company.
    NC - Not covered. Jefferies does not cover this company.
    Restricted - Describes issuers where, in conjunction with Jefferies engagement in certain transactions, company policy or applicable securities
    regulations prohibit certain types of communications, including investment recommendations.
    Monitor - Describes stocks whose company fundamentals and financials are being monitored, and for which no financial projections or opinions on
    the investment merits of the company are provided.
    Valuation Methodology
    Jefferies' methodology for assigning ratings may include the following: market capitalization, maturity, growth/value, volatility and expected total
    return over the next 12 months. The price targets are based on several methodologies, which may include, but are not restricted to, analyses of market
    risk, growth rate, revenue stream, discounted cash flow (DCF), EBITDA, EPS, cash flow (NYSE:CF), free cash flow (NYSE:FCF), EV/EBITDA, P/E, PE/growth, P/CF,
    P/FCF, premium (discount)/average group EV/EBITDA, premium (discount)/average group P/E, sum of the parts, net asset value, dividend returns,
    and return on equity (ROE) over the next 12 months.
    page 23 of 26 Eun K. Yang, Ph.D. , Equity Analyst , (212) 284-2264 , eyang@jefferies.com
    Please see important disclosure information on pages 23 - 26 of this report.
    OPK
    Initiating Coverage
    November 10, 2011
    Risk which may impede the achievement of our Price Target
    This report was prepared for general circulation and does not provide investment recommendations specific to individual investors. As such, the
    financial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions based
    upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Past performance of
    the financial instruments recommended in this report should not be taken as an indication or guarantee of future results. The price, value of, and
    income from, any of the financial instruments mentioned in this report can rise as well as fall and may be affected by changes in economic, financial
    and political factors. If a financial instrument is denominated in a currency other than the investor's home currency, a change in exchange rates may
    adversely affect the price of, value of, or income derived from the financial instrument described in this report. In addition, investors in securities such
    as ADRs, whose values are affected by the currency of the underlying security, effectively assume currency risk.
    Other Companies Mentioned in This Report
    • Bristol-Myers Squibb (BMY: $30.97, BUY)
    • Eisai (4523 JP: ¥3,060, UNDERPERFORM)
    • Exact Sciences Corporation (EXAS: $7.90, BUY)
    • Genomic Health (GHDX: $26.86, HOLD)
    • Merck & Co. (MRK: $33.79, BUY)
    • Myriad Genetics, Inc (MYGN: $20.43, BUY)
    • Optos Plc (OPTS LN: p221.25, BUY)
    • Sequenom Inc. (SQNM: $4.14, HOLD)
    • Teva Pharmaceutical Industries Ltd (TEVA: $40.58, HOLD)
    Distribution of Ratings
    IB Serv./Past 12 Mos.
    Rating Count Percent Count Percent
    BUY 742 53.50% 103 13.88%
    HOLD 570 41.10% 56 9.82%
    UNDERPERFORM 74 5.30% 2 2.70%
    Other Important Disclosures
    Jefferies Equity Research refers to research reports produced by analysts employed by one of the following Jefferies Group, Inc. (“Jefferies”) group
    companies:
    United States: Jefferies & Company, Inc., which is an SEC registered firm and a member of FINRA.
    United Kingdom: Jefferies International Limited, which is authorized and regulated by the Financial Services Authority; registered in England and
    Wales No. 1978621; registered office: Vintners Place, 68 Upper Thames Street, London EC4V 3BJ; telephone +44 (0)20 7029 8000; facsimile +44 (0)20
    7029 8010.
    page 24 of 26 Eun K. Yang, Ph.D. , Equity Analyst , (212) 284-2264 , eyang@jefferies.com
    Please see important disclosure information on pages 23 - 26 of this report.
    OPK
    Initiating Coverage
    November 10, 2011
    Hong Kong: Jefferies Hong Kong Limited, which is licensed by the Securities and Futures Commission of Hong Kong with CE number ATS546; located
    at Suite 2201, 22nd Floor, Cheung Kong Center, 2 Queen’s Road Central, Hong Kong.
    Singapore: Jefferies Singapore Limited, which is licensed by the Monetary Authority of Singapore; located at 80 Raffles Place #15-20, UOB Plaza 2,
    Singapore 048624, telephone: +65 6551 3950.
    Japan: Jefferies (Japan) Limited, Tokyo Branch, which is a securities company registered by the Financial Services Agency of Japan and is a member
    of the Japan Securities Dealers Association; located at Hibiya Marine Bldg, 3F, 1-5-1 Yuraku-cho, Chiyoda-ku, Tokyo 100-0006; telephone +813 5251
    6100; facsimile +813 5251 6101.
    India: Jefferies India Private Limited, which is licensed by the Securities and Exchange Board of India as a Merchant Banker (INM000011443) and a Stock
    Broker with Bombay Stock Exchange Limited (INB011438539) and National Stock Exchange of India Limited (INB231438533) in the Capital Market
    Segment; located at 42/43, 2 North Avenue, Maker Maxity, Bandra-Kurla Complex, Bandra (East) Mumbai 400 051, India; Tel +91 22 4356 6000.
    This material has been prepared by Jefferies employing appropriate expertise, and in the belief that it is fair and not misleading. The information set
    forth herein was obtained from sources believed to be reliable, but has not been independently verified by Jefferies. Therefore, except for any obligation
    under applicable rules we do not guarantee its accuracy. Additional and supporting information is available upon request. Unless prohibited by the
    provisions of Regulation S of the U.S. Securities Act of 1933, this material is distributed in the United States ("US"), by Jefferies & Company, Inc.,
    a US-registered broker-dealer, which accepts responsibility for its contents in accordance with the provisions of Rule 15a-6, under the US Securities
    Exchange Act of 1934. Transactions by or on behalf of any US person may only be effected through Jefferies & Company, Inc. In the United Kingdom
    and European Economic Area this report is issued and/or approved for distribution by Jefferies International Limited and is intended for use only by
    persons who have, or have been assessed as having, suitable professional experience and expertise, or by persons to whom it can be otherwise lawfully
    distributed. Jefferies International Limited has adopted a conflicts management policy in connection with the preparation and publication of research,
    the details of which are available upon request in writing to the Compliance Officer. For Canadian investors, this material is intended for use only by
    professional or institutional investors. None of the investments or investment services mentioned or described herein is available to other persons or
    to anyone in Canada who is not a "Designated Institution" as defined by the Securities Act (Ontario). For investors in the Republic of Singapore, this
    material is provided by Jefferies Singapore Limited pursuant to Regulation 32C of the Financial Advisers Regulations. The material contained in this
    document is intended solely for accredited, expert or institutional investors, as defined under the Securities and Futures Act (Cap. 289 of Singapore).
    If there are any matters arising from, or in connection with this material, please contact Jefferies Singapore Limited. In Japan this material is issued and
    distributed by Jefferies (Japan) Limited to institutional investors only. In Hong Kong, this report is issued and approved by Jefferies Hong Kong Limited
    and is intended for use only by professional investors as defined in the Hong Kong Securities and Futures Ordinance and its subsidiary legislation. In the
    Republic of China (Taiwan), this report should not be distributed. In India this report is made available by Jefferies India Private Limited. In Australia this
    information is issued solely by Jefferies International Limited and is directed solely at wholesale clients within the meaning of the Corporations Act 2001
    of Australia (the "Act") in connection with their consideration of any investment or investment service that is the subject of this document. Any offer
    or issue that is the subject of this document does not require, and this document is not, a disclosure document or product disclosure statement within
    the meaning of the Act. Jefferies International Limited is authorised and regulated by the Financial Services Authority under the laws of the United
    Kingdom, which differ from Australian laws. Jefferies International Limited has obtained relief under Australian Securities and Investments Commission
    Class Order 03/1099, which conditionally exempts it from holding an Australian financial services licence under the Act in respect of the provision of
    certain financial services to wholesale clients. Recipients of this document in any other jurisdictions should inform themselves about and observe any
    applicable legal requirements in relation to the receipt of this document.
    This report is not an offer or solicitation of an offer to buy or sell any security or derivative instrument, or to make any investment. Any opinion or
    estimate constitutes the preparer's best judgment as of the date of preparation, and is subject to change without notice. Jefferies assumes no obligation
    to maintain or update this report based on subsequent information and events. Jefferies, its associates or affiliates, and its respective officers, directors,
    and employees may have long or short positions in, or may buy or sell any of the securities, derivative instruments or other investments mentioned or
    described herein, either as agent or as principal for their own account. Upon request Jefferies may provide specialized research products or services
    to certain customers focusing on the prospects for individual covered stocks as compared to other covered stocks over varying time horizons or
    under differing market conditions. While the views expressed in these situations may not always be directionally consistent with the long-term views
    expressed in the analyst's published research, the analyst has a reasonable basis and any inconsistencies can be reasonably explained. This material
    does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual
    clients. Clients should consider whether any advice or recommendation in this report is suitable for their particular circumstances and, if appropriate,
    seek professional advice, including tax advice. The price and value of the investments referred to herein and the income from them may fluctuate. Past
    performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange
    rates could have adverse effects on the value or price of, or income derived from, certain investments. This report has been prepared independently of
    any issuer of securities mentioned herein and not in connection with any proposed offering of securities or as agent of any issuer of securities. None
    of Jefferies, any of its affiliates or its research analysts has any authority whatsoever to make any representations or warranty on behalf of the issuer(s).
    Jefferies policy prohibits research personnel from disclosing a recommendation, investment rating, or investment thesis for review by an issuer prior
    to the publication of a research report containing such rating, recommendation or investment thesis. Any comments or statements made herein are
    those of the author(s) and may differ from the views of Jefferies.
    This report may contain information obtained from third parties, including ratings from credit ratings agencies such as Standard & Poor’s. Reproduction
    and distribution of third party content in any form is prohibited except with the prior written permission of the related third party. Third party content
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    Jefferies research reports are disseminated and available primarily electronically, and, in some cases, in printed form. Electronic research is
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    or losses arising from any use of this report or its contents.
    For Important Disclosure information, please visit our website at javatar.bluematrix.com/sellside/Disclosu... or call 1.888.JEFFERIES
    page 25 of 26 Eun K. Yang, Ph.D. , Equity Analyst , (212) 284-2264 , eyang@jefferies.com
    Please see important disclosure information on pages 23 - 26 of this report.
    OPK
    Initiating Coverage
    November 10, 2011
    © 2011 Jefferies Group, Inc.
    page 26 of 26 Eun K. Yang, Ph.D. , Equity Analyst , (212) 284-2264 , eyang@jefferies.com
    Please see important disclosure information on pages 23 - 26 of this report.
    OPK
    Initiating Coverage
    November 10, 2011


    Disclosure: I am long OPK.
    Stocks: TEVA, OPK, MRK, DRUG
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