OPKO Health: A New Growth Phase To Start In 2017 - opk
Dec 16, 2016 13:44:52 GMT
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Post by stcks on Dec 16, 2016 13:44:52 GMT
OPKO Health: A New Growth Phase To Start In 2017 - opk
seekingalpha.com/article/4030947-opko-health-new-growth-phase-start-2017
Summary
OPKO officially launched Rayaldee in late November with a rather small sales force.
The usual roadblocks early in the launch could keep the prescription growth constrained; I expect a more robust uptick in sales in 2H 2017.
Palmetto is still holding back the 4Kscore test; uptake in 2017 will probably be slower than I anticipated a few months ago.
Overall, OPKO remains well positioned for solid long-term gains and 2017 should mark the start of a new growth phase for the company.
2017 could be a truly transformative year for OPKO Health (NYSEMKT:OPK). The company just launched Rayaldee, a product that has blockbuster potential. The 4Kscore is growing nicely but could accelerate in 2017 if things go the right way with the two MACs. Tesaro (NASDAQ:TSRO) should have the IV version of Varubi approved in early 2017, which could increase the royalty stream for OPKO in late 2017 and beyond. The company also expects to report phase 3 data in hGH-CTP in the following weeks and to initiate several mid- and late-stage trials over the next 6-9 months. So, there is a lot of value-creating potential for long-term shareholders over the next few years. In this article, I take a look at Rayaldee's growth expectations for 2017 and the progress the company is making with the 4Kscore test, along with the other catalysts that could increase shareholder value.
Rayaldee launched in late November; are 2017 estimates low enough to catalyze the stock higher?
OPKO announced the official launch of Rayaldee in late November. As a reminder, Rayaldee is the first and only FDA-approved product for the treatment of secondary hyperparathyroidism or SHPT in adult patients with stage 3 or 4 chronic kidney disease and vitamin D insufficiency. There are 9 million patients in the U.S. alone and the company believes that the market is worth more than $12 billion annually. OPKO hopes to change the current standard of care, which is aggressive supplementation with nutritional vitamin D, which is not approved by the FDA nor was it shown to be safe and effective in this patient population. The company noted on the Q3 earnings call that a recently published randomized clinical trial concluded that nutritional vitamin D is completely ineffective in SHPT. Active vitamin hormones (Calcitriol, Paricalcitol, Doxercalciferol) are approved therapies for SHPT in patients with stage 3 and 4 CKD, but are not recommended for routine use in this patient population according to the new KDIGO clinical practice guidelines.
So, Rayaldee apparently has an edge over competing therapies, but changing the treatment paradigm and increasing awareness will take time. This may especially be true early on for OPKO considering the current small dedicated sales force of 35 regional sales reps plus the 10 telemarketing reps. The company eventually plans to have between 70 and 80 sales reps by mid-2017, which is the time I expect prescriptions to accelerate. I expect the initial prescription growth to be modest given the usual roadblocks early in the launch - spotty coverage, low awareness and the lack of physician and patient experience. The coverage is always unfavorable early in the launch and I expect the situation to be substantially better by Q2 2017 and especially in 2H 2017. Awareness should rise along the way and physicians will probably prescribe Rayaldee to a couple of patients first to see how the drug works, and if it works well, they should gradually start prescribing the drug to more patients.
And how much can Rayaldee generate in 2017? It is really hard to speculate without any prescription data but I believe next year's revenue expectations are low enough for OPKO to deliver an upside surprise. The 2017 revenue estimate is $1.43 billion, which is just $180 million higher than the 2016 consensus. I think this increase could be generated by BioReference, the 4Kscore test and Varubi royalties alone and that additional upside will come from Rayaldee. I believe Rayaldee can generate at least $30-40 million in revenues and up to $50-70 million in 2017 (though I would leave room for additional upside to those estimates).
4Kscore test - uptake to be slower than I initially thought
The 4Kscore test has seen robust growth over the last few quarters, but growth has slowed down in Q3. Approximately 16,000 tests were performed in Q3, representing a 9% sequential increase. The sequential growth rate is still impressive but not that much if we look at the company's statement in Q2 - that around 5,300 tests were performed in the month of June, which means that we practically saw no month-over-month growth in Q3 when compared to the number of tests performed in June. Seasonality could be playing its part here, though (summer months, vacations).
The lack of positive draft coverage determinations by the two MACs - Palmetto and Novitas - is most certainly negatively affecting the growth of the 4Kscore test. The company is still working with Novitas to reinstate their positive coverage decision and Novitas should make a decision in February. OPKO is also working with Palmetto to address their concerns. The company expects to provide additional evidence to Palmetto to try to overturn the negative coverage decision.
I was previously expecting OPKO to hit 5% market share by the end of 2016 and to reach 10%+ market share in 2017. The Q3 test run rate translates to just above 3% market share and I don't think 5% in 2016 and 10%+ in 2017 are achievable anymore. It currently looks more like around 3.5% market share in 2016 and 5-7% in 2017. I have lowered my expectations based on the growth slowdown in Q3 and the lack of positive draft coverage determinations by the two MACs. The issue with the two MACs could be resolved in 1H 2017 leading to growth acceleration in 2H 2017, but I have tempered my expectations due to the overall uncertainty with those decisions. On the positive side, the company will have a Category I CPT code for the 4Kscore test in January 2017, which will be a significant upgrade from the Category III Administrative code, and it should help reaccelerate growth in 2017 even without the positive draft coverage determinations from Novitas and/or Palmetto.
Pipeline is advancing
In addition to the expected commercial progress, OPKO also has a lot going on in the pipeline.
Source: OPKO investor presentation
Phase 3 trial results of hGH-CTP are the most important near-term pipeline catalyst with the results due before the end the year. I wrote about the pipeline in previous articles, but new developments are worth mentioning. OPKO recently closed the Transition Therapeutics acquisition and provided an update on the two leading candidates:
The company intends to initiate a phase 2b trial of TT401 (oxyntomodulin), a once a weekly administered GLP/glucagon dual receptor agonist for type 2 diabetes and obesity in 2H 2017. TT401 demonstrated significant superior weight loss over currently-approved exanatide and placebo and a similar reduction of hemoglobin A1c, a marker of sugar metabolism.
Source: OPKO investor presentation
The company intends to initiate a phase 2 study of TT701 in 2H 2017 as well. This candidate is targeting benign prostatic hypertrophy, or BPH and results from a phase 2 trial for another indication showed "significantly increased lean body mass and muscle strength and significant fat mass reduction with no change or lower prostate specific antigen (PSA) levels." TT701 has also reduced the size of the prostate in animal studies.
I think that the pipeline holds significant value-creating potential over the next few years as the majority of candidates are targeting multi-billion dollar markets.
Conclusion
Things are moving in the right direction for OPKO. The continued solid uptake for the 4Kscore test, the launch of Rayaldee, the expected approval and launch of the IV version of Varubi and the recently announced entry into the animal health market should help accelerate the revenue growth in 2017 while the pipeline could unlock additional shareholder value in the near term (hGH-CTP phase 3 results this month) and in the medium and long term (multiple candidates targeting multi-billion dollar markets).
OPKO has finally crossed the first significant resistance level around $11 per share and the stock is performing quite well lately considering the overall weakness in the biotech industry. This points to solid accumulation and I believe it is a good sign. The next significant resistance level is around $12 and OPKO is now just slightly below it.
Source: Stockcharts.com
Author's note: Growth Stock Forum subscribers had an early look at this article, and have access to regular exclusive updates on every stock I am covering. Readers are invited to take a two-week free trial in the Seeking Alpha Marketplace.
Disclosure: I am/we are long OPK.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article reflects the author's personal opinion and should not be regarded as a buy or sell recommendation or investment advice in any way.
seekingalpha.com/article/4030947-opko-health-new-growth-phase-start-2017
Summary
OPKO officially launched Rayaldee in late November with a rather small sales force.
The usual roadblocks early in the launch could keep the prescription growth constrained; I expect a more robust uptick in sales in 2H 2017.
Palmetto is still holding back the 4Kscore test; uptake in 2017 will probably be slower than I anticipated a few months ago.
Overall, OPKO remains well positioned for solid long-term gains and 2017 should mark the start of a new growth phase for the company.
2017 could be a truly transformative year for OPKO Health (NYSEMKT:OPK). The company just launched Rayaldee, a product that has blockbuster potential. The 4Kscore is growing nicely but could accelerate in 2017 if things go the right way with the two MACs. Tesaro (NASDAQ:TSRO) should have the IV version of Varubi approved in early 2017, which could increase the royalty stream for OPKO in late 2017 and beyond. The company also expects to report phase 3 data in hGH-CTP in the following weeks and to initiate several mid- and late-stage trials over the next 6-9 months. So, there is a lot of value-creating potential for long-term shareholders over the next few years. In this article, I take a look at Rayaldee's growth expectations for 2017 and the progress the company is making with the 4Kscore test, along with the other catalysts that could increase shareholder value.
Rayaldee launched in late November; are 2017 estimates low enough to catalyze the stock higher?
OPKO announced the official launch of Rayaldee in late November. As a reminder, Rayaldee is the first and only FDA-approved product for the treatment of secondary hyperparathyroidism or SHPT in adult patients with stage 3 or 4 chronic kidney disease and vitamin D insufficiency. There are 9 million patients in the U.S. alone and the company believes that the market is worth more than $12 billion annually. OPKO hopes to change the current standard of care, which is aggressive supplementation with nutritional vitamin D, which is not approved by the FDA nor was it shown to be safe and effective in this patient population. The company noted on the Q3 earnings call that a recently published randomized clinical trial concluded that nutritional vitamin D is completely ineffective in SHPT. Active vitamin hormones (Calcitriol, Paricalcitol, Doxercalciferol) are approved therapies for SHPT in patients with stage 3 and 4 CKD, but are not recommended for routine use in this patient population according to the new KDIGO clinical practice guidelines.
So, Rayaldee apparently has an edge over competing therapies, but changing the treatment paradigm and increasing awareness will take time. This may especially be true early on for OPKO considering the current small dedicated sales force of 35 regional sales reps plus the 10 telemarketing reps. The company eventually plans to have between 70 and 80 sales reps by mid-2017, which is the time I expect prescriptions to accelerate. I expect the initial prescription growth to be modest given the usual roadblocks early in the launch - spotty coverage, low awareness and the lack of physician and patient experience. The coverage is always unfavorable early in the launch and I expect the situation to be substantially better by Q2 2017 and especially in 2H 2017. Awareness should rise along the way and physicians will probably prescribe Rayaldee to a couple of patients first to see how the drug works, and if it works well, they should gradually start prescribing the drug to more patients.
And how much can Rayaldee generate in 2017? It is really hard to speculate without any prescription data but I believe next year's revenue expectations are low enough for OPKO to deliver an upside surprise. The 2017 revenue estimate is $1.43 billion, which is just $180 million higher than the 2016 consensus. I think this increase could be generated by BioReference, the 4Kscore test and Varubi royalties alone and that additional upside will come from Rayaldee. I believe Rayaldee can generate at least $30-40 million in revenues and up to $50-70 million in 2017 (though I would leave room for additional upside to those estimates).
4Kscore test - uptake to be slower than I initially thought
The 4Kscore test has seen robust growth over the last few quarters, but growth has slowed down in Q3. Approximately 16,000 tests were performed in Q3, representing a 9% sequential increase. The sequential growth rate is still impressive but not that much if we look at the company's statement in Q2 - that around 5,300 tests were performed in the month of June, which means that we practically saw no month-over-month growth in Q3 when compared to the number of tests performed in June. Seasonality could be playing its part here, though (summer months, vacations).
The lack of positive draft coverage determinations by the two MACs - Palmetto and Novitas - is most certainly negatively affecting the growth of the 4Kscore test. The company is still working with Novitas to reinstate their positive coverage decision and Novitas should make a decision in February. OPKO is also working with Palmetto to address their concerns. The company expects to provide additional evidence to Palmetto to try to overturn the negative coverage decision.
I was previously expecting OPKO to hit 5% market share by the end of 2016 and to reach 10%+ market share in 2017. The Q3 test run rate translates to just above 3% market share and I don't think 5% in 2016 and 10%+ in 2017 are achievable anymore. It currently looks more like around 3.5% market share in 2016 and 5-7% in 2017. I have lowered my expectations based on the growth slowdown in Q3 and the lack of positive draft coverage determinations by the two MACs. The issue with the two MACs could be resolved in 1H 2017 leading to growth acceleration in 2H 2017, but I have tempered my expectations due to the overall uncertainty with those decisions. On the positive side, the company will have a Category I CPT code for the 4Kscore test in January 2017, which will be a significant upgrade from the Category III Administrative code, and it should help reaccelerate growth in 2017 even without the positive draft coverage determinations from Novitas and/or Palmetto.
Pipeline is advancing
In addition to the expected commercial progress, OPKO also has a lot going on in the pipeline.
Source: OPKO investor presentation
Phase 3 trial results of hGH-CTP are the most important near-term pipeline catalyst with the results due before the end the year. I wrote about the pipeline in previous articles, but new developments are worth mentioning. OPKO recently closed the Transition Therapeutics acquisition and provided an update on the two leading candidates:
The company intends to initiate a phase 2b trial of TT401 (oxyntomodulin), a once a weekly administered GLP/glucagon dual receptor agonist for type 2 diabetes and obesity in 2H 2017. TT401 demonstrated significant superior weight loss over currently-approved exanatide and placebo and a similar reduction of hemoglobin A1c, a marker of sugar metabolism.
Source: OPKO investor presentation
The company intends to initiate a phase 2 study of TT701 in 2H 2017 as well. This candidate is targeting benign prostatic hypertrophy, or BPH and results from a phase 2 trial for another indication showed "significantly increased lean body mass and muscle strength and significant fat mass reduction with no change or lower prostate specific antigen (PSA) levels." TT701 has also reduced the size of the prostate in animal studies.
I think that the pipeline holds significant value-creating potential over the next few years as the majority of candidates are targeting multi-billion dollar markets.
Conclusion
Things are moving in the right direction for OPKO. The continued solid uptake for the 4Kscore test, the launch of Rayaldee, the expected approval and launch of the IV version of Varubi and the recently announced entry into the animal health market should help accelerate the revenue growth in 2017 while the pipeline could unlock additional shareholder value in the near term (hGH-CTP phase 3 results this month) and in the medium and long term (multiple candidates targeting multi-billion dollar markets).
OPKO has finally crossed the first significant resistance level around $11 per share and the stock is performing quite well lately considering the overall weakness in the biotech industry. This points to solid accumulation and I believe it is a good sign. The next significant resistance level is around $12 and OPKO is now just slightly below it.
Source: Stockcharts.com
Author's note: Growth Stock Forum subscribers had an early look at this article, and have access to regular exclusive updates on every stock I am covering. Readers are invited to take a two-week free trial in the Seeking Alpha Marketplace.
Disclosure: I am/we are long OPK.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article reflects the author's personal opinion and should not be regarded as a buy or sell recommendation or investment advice in any way.