OPKO Health: Significant Growth Potential From FDA Approval
Nov 10, 2016 13:26:18 GMT
stcks, miamianne67, and 8 more like this
Post by Deleted on Nov 10, 2016 13:26:18 GMT
Summary
OPKO Health looks attractive as Rayaldee received FDA approval.
The FDA approval and Rayaldee’s sales potential is not priced into the stock.
I see large upside potential for OPKO in 2017 and beyond.
OPKO Health (NYSEMKT:OPK) is positioned well for investors with an attractive valuation and a bright future. OPKO received FDA approval for its drug, Rayaldee earlier this year. That set up a Q4 2016 product launch for Rayaldee, which has an indication for secondary hyperparathyroidism [SHPT] with Vitamin D insufficiency in stage 3/4 chronic kidney disease.
Prior to Rayaldee, patients with this condition were treated with high dose Vitamin D supplementation. However, that treatment has not been FDA approved or determined to be safe and effective. Rayaldee provides patients with a reduction of 30% or greater in plasma intact parathyroid hormone [iPTH] as compared to placebo. The use of Rayaldee also corrected Vitamin D insufficiency in more than 80% of patients as compared to 7% for those on placebo.
The FDA approval of Rayaldee takes the risk of having the drug rejected out of the equation. I don't think the price of Rayaldee's potential sales is priced into the stock. Sales of Rayaldee will allow OPKO to turn a profit in 2017, which will help catalyze the stock when the actual sales and profits are announced.
Rayaldee is currently the only drug with FDA approval for this condition. There is no drug under development that simultaneously treats pre-dialysis SHPT patients while correcting Vitamin D insufficiency. Therefore, Opko is likely to capture significant market share as the drug hits the market.
Market Size & Potential Sales
There are about 9 million patients in the U.S. with SHPT with Vitamin D insufficiency in stage 3/4 chronic kidney disease. Opko estimates the total market potential for Rayaldee to be $12 billion annually. This gives Rayaldee an estimated price of $1333 on an annual basis. Opko only needs a little over 750,000 patients or 8% of the market for Rayaldee to become a blockbuster drug with sales of at least $1 billion
Valuation
The market is not fully valuing the company. The stock is trading at about 4.88X TTM sales. Out of 18 biotech companies with market caps between $2 billion and $8 billion, OPKO has the lowest Price to Sales ratio. Jazz Pharmaceuticals (NASDAQ:JAZZ) comes close with a P/S ratio of 5.39. Out of the 20 companies, 80% or 16 of them have P/S ratios that are in the double digits or higher. The biotech industry as a whole (including all market-caps) has a P/S ratio of 6.97. That's 43% higher than OPKO's valuation.
If OPKO was trading with a P/S ratio of 6.97, the stock price would be about 43% higher at $13.68 instead of the current price of $9.58. That's based on past TTM sales of about $1.07 billion. The future sales of Rayaldee are not priced into the stock. Consensus estimates show that OPKO's revenue is expected to be about $1.47 billion in 2017. That is about $200 million more than 2016's expected revenue. The 2017 estimate is probably too low since it is only factoring in about 150,000 patients at $1333 each. I think it is reasonable for OPKO to secure 200,000 patients in 2017. That's only 2% of the 9 million potential patients.
The extra 50,000 patients represents about $66.7 million in additional revenue for a total of $1.5 billion for 2017, or 2% higher than consensus. If OPKO maintained its current P/S ratio, the company would have a market cap of $7.3 billion with $1.5 billion in revenue. That would drive the stock price to about $13.22 with 552 million shares outstanding.
Even the low revenue consensus estimate for 2017 is expected to turn OPKO profitable. I expect the stock to move higher as the sales of Rayaldee become more evident. I think now is the time to get in before the market realizes the true revenue potential for Rayaldee.
The Risks
OPKO may not be as successful in marketing Rayaldee as I expect. The nephrologists and endocrinologists who the company is targeting may find that Rayaldee is not in the best interest of their patients. Or, it may take longer than anticipated to secure the amount of patients that are expected.
The company could experience higher than expected costs as a result of the launch of Rayaldee. Higher than anticipated costs could disappoint investors, causing a sell-off in the stock.
Conclusion
Rayaldee is likely to be a strong catalyst for OPKO's stock in 2017 and beyond. The stock is currently undervalued and has room to expand as actual sales become more evident. I think it is reasonable for the stock to increase by about 40% to 45% over the next 12 to 18 months as actual sales of Rayaldee are reported with the market giving the stock a higher valuation.
seekingalpha.com/article/4021970-opko-health-significant-growth-potential-fda-approval
OPKO Health looks attractive as Rayaldee received FDA approval.
The FDA approval and Rayaldee’s sales potential is not priced into the stock.
I see large upside potential for OPKO in 2017 and beyond.
OPKO Health (NYSEMKT:OPK) is positioned well for investors with an attractive valuation and a bright future. OPKO received FDA approval for its drug, Rayaldee earlier this year. That set up a Q4 2016 product launch for Rayaldee, which has an indication for secondary hyperparathyroidism [SHPT] with Vitamin D insufficiency in stage 3/4 chronic kidney disease.
Prior to Rayaldee, patients with this condition were treated with high dose Vitamin D supplementation. However, that treatment has not been FDA approved or determined to be safe and effective. Rayaldee provides patients with a reduction of 30% or greater in plasma intact parathyroid hormone [iPTH] as compared to placebo. The use of Rayaldee also corrected Vitamin D insufficiency in more than 80% of patients as compared to 7% for those on placebo.
The FDA approval of Rayaldee takes the risk of having the drug rejected out of the equation. I don't think the price of Rayaldee's potential sales is priced into the stock. Sales of Rayaldee will allow OPKO to turn a profit in 2017, which will help catalyze the stock when the actual sales and profits are announced.
Rayaldee is currently the only drug with FDA approval for this condition. There is no drug under development that simultaneously treats pre-dialysis SHPT patients while correcting Vitamin D insufficiency. Therefore, Opko is likely to capture significant market share as the drug hits the market.
Market Size & Potential Sales
There are about 9 million patients in the U.S. with SHPT with Vitamin D insufficiency in stage 3/4 chronic kidney disease. Opko estimates the total market potential for Rayaldee to be $12 billion annually. This gives Rayaldee an estimated price of $1333 on an annual basis. Opko only needs a little over 750,000 patients or 8% of the market for Rayaldee to become a blockbuster drug with sales of at least $1 billion
Valuation
The market is not fully valuing the company. The stock is trading at about 4.88X TTM sales. Out of 18 biotech companies with market caps between $2 billion and $8 billion, OPKO has the lowest Price to Sales ratio. Jazz Pharmaceuticals (NASDAQ:JAZZ) comes close with a P/S ratio of 5.39. Out of the 20 companies, 80% or 16 of them have P/S ratios that are in the double digits or higher. The biotech industry as a whole (including all market-caps) has a P/S ratio of 6.97. That's 43% higher than OPKO's valuation.
If OPKO was trading with a P/S ratio of 6.97, the stock price would be about 43% higher at $13.68 instead of the current price of $9.58. That's based on past TTM sales of about $1.07 billion. The future sales of Rayaldee are not priced into the stock. Consensus estimates show that OPKO's revenue is expected to be about $1.47 billion in 2017. That is about $200 million more than 2016's expected revenue. The 2017 estimate is probably too low since it is only factoring in about 150,000 patients at $1333 each. I think it is reasonable for OPKO to secure 200,000 patients in 2017. That's only 2% of the 9 million potential patients.
The extra 50,000 patients represents about $66.7 million in additional revenue for a total of $1.5 billion for 2017, or 2% higher than consensus. If OPKO maintained its current P/S ratio, the company would have a market cap of $7.3 billion with $1.5 billion in revenue. That would drive the stock price to about $13.22 with 552 million shares outstanding.
Even the low revenue consensus estimate for 2017 is expected to turn OPKO profitable. I expect the stock to move higher as the sales of Rayaldee become more evident. I think now is the time to get in before the market realizes the true revenue potential for Rayaldee.
The Risks
OPKO may not be as successful in marketing Rayaldee as I expect. The nephrologists and endocrinologists who the company is targeting may find that Rayaldee is not in the best interest of their patients. Or, it may take longer than anticipated to secure the amount of patients that are expected.
The company could experience higher than expected costs as a result of the launch of Rayaldee. Higher than anticipated costs could disappoint investors, causing a sell-off in the stock.
Conclusion
Rayaldee is likely to be a strong catalyst for OPKO's stock in 2017 and beyond. The stock is currently undervalued and has room to expand as actual sales become more evident. I think it is reasonable for the stock to increase by about 40% to 45% over the next 12 to 18 months as actual sales of Rayaldee are reported with the market giving the stock a higher valuation.
seekingalpha.com/article/4021970-opko-health-significant-growth-potential-fda-approval
