What: Shares of Opko Health (OPK -1.60%), a healthcare company focused on developing pharmaceutical products and diagnostic solutions for a range of illnesses, launched 21% higher in January per S&P Capital IQ primarily as a continuation of investor reaction to its licensing agreement announcement with Pfizer (PFE -0.19%) in December.
So what: As a refresher, on Dec. 15, Opko and Pfizer entered into global licensing agreement to exclusively commercialize hGH-CTP, Opko's late-stage human growth hormone drug. The drug has shown considerable promise in studies as it aims to reduce the standard injection of human growth hormone from once-daily to just once a week. Under the terms of the agreement, Opko is to receive $295 million in upfront cash with the potential to earn another $275 million in regulatory milestones. Pfizer will handle the development costs for additional indications and lead the manufacturing activities, while Opko will continue to lead all current clinical activities and manage their cost.
Additionally, Opko would receive royalty payments associated with the commercialization of hGH-CTP for adult hormone growth deficiency. Assuming hGH-CTP was approved in a pediatric setting as well, the royalties would transition to gross profit sharing between the two companies.
In late January, Opko announced that it and Pfizer had received regulatory clearance for their global agreement, meaning Opko's big payday is right around the corner.
Source: Opko Health.
Now what: While Opko's licensing agreement is great news since it puts extra cash in its coffers, I have to think that even with positive data from hGH-CTP and Rayaldee, the company's moderate-to-late-stage treatment for secondary hyperparathyroidism in patients with late-stage chronic kidney disease and vitamin D insufficiency, Opko's valuation is a bit stretched.
Even assuming both drugs are approved and their launches go flawlessly, Opko is unlikely to hit $1 billion in total revenue until 2019 by my estimates, and according to Wall Street won't see a chance at product sale-driven profitability until 2017.
I will give Opko credit for having a very intriguing pipeline that could certainly fill a lot of unmet needs. Unfortunately, I suspect emotional traders have been pushing Opko higher over the past month instead of level headed investors. Although I wouldn't rule out a $5 billion-plus valuation for Opko at some point, I don't believe now is the time for investors to consider buying into Opko.
