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Opko Health, Inc. (OPK): This Dip Offers Another Investing Opportunity

|Includes: OPKO Health, Inc. (OPK)

Opko is working on its proprietary 4Kscore test that can predict the probability of prostate cancer prior to prostate biopsy. In November, Opko announced the clinical validation study for its 4Kscore test. The company has begun enrolling patients across 13 sites in the U.S, and it is planning to enroll more than 1,200 patients referred for a prostate biopsy over the coming months.

A PSA test, which costs between $60 and $80, is used to detect prostate cancer and check cancer recurrence among men diagnosed with prostate cancer. The PSA test measures the level of PSA in blood. A doctor will recommend a prostate biopsy if the PSA level is above 4 nanogram per mL or ng/mL. Higher PSA levels can be a sign of prostate cancer, but it may not be fully reliable to prove its existence.

The 4Kscore is a blood test that measures serum levels of prostate-derived kallikrein proteins including total PSA, free PSA, intact PSA, and hK2 in the blood. The test measures the probability of prostate cancer using its algorithm, kallikrein protein levels in blood, patient's age, and digital rectal examination (known as DRE). It is known that free PSA levels decrease in men having prostate cancer compared to those with benign conditions. The hK2 levels can also be a differentiator between benign conditions and prostate cancer. A study found that 56% of men with a free/total PSA ratio less than 0.10 had prostate cancer whereas only 8% of men with free/total PSA greater than 0.25 had prostate cancer. These kallikrein protein levels are also useful in predicting prostate cancer in men with elevated PSA levels.

Opko sublicensed with IHT to conduct a study in the UK, Ireland, Sweden, and Denmark, to predict the probability of biopsies in men suspected of having prostate cancer using its 4Kscore test. The study indicated that kallikrein protein levels used in the 4Kscore test could lead to a possible 50%+ reduction of unnecessary prostate biopsies. The probability of delaying diagnosis for late stage prostate cancer was found to be 0.6%.

Every year more than 70 million PSA tests are conducted worldwide, which represents an annual market size of $4.2 billion (assuming $60 per PSA test). It is expected that peak annual sales of the 4Kscore will be $300 million (assuming $300 per test). This translates to about 1 million 4Kscore tests annually, which is only 1.42% of the PSA tests conducted and represents a niche market. A traditional PSA test will only look for PSA levels in blood whereas 4Kscore involves more measures to confirm prostate cancer. This will help it to overcome some of its cost disadvantage against traditional PSA tests.

CKD effects and its treatment

Opko announced the completion of patient recruitment in the first phase 3 trial of Rayaldy in November. Each of the two phase 3 trials will enroll 210 patients being recruited at 40 sites in the U.S. These trials will be followed by an open-label extension study, known as an OLE, in which patients have the option to be treated with Rayaldy for another 6 months. As of now, 129 patients have enrolled in this OLE study.

Rayaldy, also known as Replidea, was found to be effective in its phase 2b clinical trial to treat Secondary Hyperparathyroidism, or SHPT, and vitamin D insufficiency in pre-dialysis patients. Rayaldy reduces the parathyroid hormone, or PTH, levels, which isn't available in existing vitamin D supplements. Once approved, Rayaldy can be used to solve health problems faced by moderate CKD (stage 3 or 4) patients, along with those suffering from SHPT and vitamin D insufficiency. CKD affects over 26 million people in the U.S., including over 8 million patients with moderate CKD and severe CKD. This provides huge market potential for this drug, and Rayaldy is expected to gain a significant share in the $12 billion moderate CKD drug market.

Moves by other players

In November, Keryx Biopharmaceuticals (NASDAQ:KERX) provided updates on its drug "Zerenex" regarding a safety extension study for the treatment of hyperphosphatemia in patients with CKD. Those patients who had participated and completed the 58-week phase 3 study were eligible for this 48-week OLE study, which represented exposure to Zerenex for 2 years. It was observed that serum phosphorus could be controlled in patients with a normal range of 3.5 to 5.5 mg/dL. Zerenex has been observed to be safe in this study up to now with a discontinuation rate of 17% in this study.

The company's New Drug Application, or NDA, for the treatment of hyperphosphatemia in CKD patients on dialysis, is currently under review by the FDA and has a PDUFA date of June 7, 2014. The end-stage renal disease market potential is significant and could possibly reach a patient population of 7.85 million by 2020. The peak sales for Zerenex in the U.S. are estimated to reach $300 million. Zerenex has the potential to be launched ahead of its competitor's drug, Alpharen, which will begin the next stage of its phase 3 trial in the second half of 2014.

On the other hand, Amgen's (NASDAQ:AMGN) CKD drug, "Sensipar," was ranked 59th based on the total expenditures and number of prescriptions. Sensipar, used for the treatment of SHPT in CKD patients, contributed about $259 million or 5.45% of Amgen's revenue in the third quarter of fiscal year 2013. Sensipar's U.S. and global revenue grew 6% and 7%, respectively, compared to the third quarter of fiscal year 2012. Amgen will continue to benefit from this CKD drug, as its patent doesn't expire until 2018.

Conclusion

Opko's 4Kscore provides an opportunity for the company to create a niche market in the overall prostate cancer detection market. On the other hand, its CKD drug Rayaldy has started Phase 3 trials, and looking at its phase 2 efficacy results, it can be expected that the company will also post positive phase 3 results.

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