This biotech has several compelling products in its pipeline, and the shares appear undervalued at this level.
OPKO Health, Inc. (OPK)
From Crisis & Opportunity
OPKO Health, Inc. (OPKO) is a biopharmaceutical and diagnostics company. It is a big player with a $4.6 billion market cap. The company makes and sells a variety of medical point-of-care tests, laboratory developed tests, molecular diagnostics tests, and pharmaceuticals and vaccines.
It has two segments: pharmaceutical and diagnostics. Its pharmaceutical segment does research and development and pharmaceutical operations. Its diagnostics segment consists of pathology operations and point-of-care and molecular diagnostics operations.
The company owns pharmaceutical operations in Chile, Spain, Mexico, Israel, Uruguay, and Brazil.
The most recent quarterly earnings were $0.25 EPS, beating the analyst consensus estimate by $0.26. The company had revenue of $143 million, up 622.2% compared to the same quarter last year. although this is a one-time tax benefit due to a buyout of Bio-Reference Laboratories last summer.
The market didn’t like the buyout and sold the stock.
OPK sells a blood test for prostate cancer called the 4KScore Test. It is better than the PSA test that is the standard for the simple reason that PSA has many false positives. 4KScore is used after someone tests positive with the PSA and could reduce the number of biopsies by 40%. As a forty-something year old man, this is good news. Prostate cancer is the number one form of new cancer in the U.S. with a 27% share.
The company should see continued benefits to the bottom line as the company will expand its sales force and get more of its 4KScore prostate cancer genetic tests out to more doctors.
Other revenue streams include a deal with Tesaro (TSRO), which launched Varubi, an anti-nausea cancer drug it licensed from Opko Health. Varubi competes in a $1 billion market and Opko Health can collect $95 million in milestones, plus double-digit royalties on sales.
On March 29, the FDA will pass judgment on Opko Health’s Rayaldee, a vitamin D prohormone for use in chronic kidney disease patients. Opko Health estimates this market to be worth as much as $12 billion. Later in 2016, Opko expects to report phase 3 data for hGH-CTP, a human growth hormone that it’s developing in collaboration with Pfizer Inc. This deal would be worth up to $275 million in milestone payments plus royalties from Pfizer.
I should also mention that 30% of the float is short. Any good news at this point would cause a massive short squeeze as traders buy back shares and head for the exit.
The next earnings will come out on February 29. I want to own Opko Health before the pre-earnings run-up. There are no guarantees in biotech, but you can make a huge amount of money if you pick the right horse. It’s a great time to start looking for babies that got tossed out with the bathwater.
Buy Opko Health under $8.50. One-year price target is $16.37. Stop-loss is $5.91.
Christian DeHaemer, Crisis and Opportunity, www.angelpub.com, 877-303-4529, February 5, 2016