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The complete Summary on Opko Health (opk) The investors guide

|Includes:DRUG, MRK, OPK, Teva Pharmaceutical Industries Limited (TEVA)
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.... (NYSE: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 (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:
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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
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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