After the company reported in December that a key late-stage drug had come up short in trials, a sharp sell-off caused Opko Health (NASDAQ:OPK) to finish the fourth quarter down 12.2%, capping a 7.5% loss for the year, according to S&P Global Market Intelligence.
Opko Health is run by billionaire CEO Phillip Frost, and until recently, Frost has been very successful at commercializing clinical-stage drugs that he's purchased for Opko Health at bargain prices. Among his successes are the chemotherapy-induced vomiting and nausea treatment Varubi, which is licensed to Tesaro, and the vitamin D prohormone Rayaldee.
Frost's track record, however, got a bit tarnished last month when a trial evaluating Opko Health's long-lasting growth hormone hGH-CTP in adults failed to outperform a placebo in changing trunk fat mass, the primary endpoint of its study.
The trial's failure was particularly disappointing because hGH-CTP is licensed to Pfizer, and Pfizer would have been on the hook to pay Opko Health milestones, plus royalties, if hGH-CTP's trial had succeeded and led to a FDA approval.
Opko Health is analyzing the data to see if it can find a silver lining, but in the meantime, attention on hGH-CTP shifts to an ongoing study evaluating hGH-CTP in children. If that pediatric study is positive, then hGH-CTP could still have a future. However, it will be a while before we know that trial's outcome, and in this trial, hGH-CTP's control arm is Pfizer's nine-figure growth hormone Genotropin, rather than an arguably easier-to-beat placebo.
The trial failure in adults is far from a death blow. Varubi royalties could pick up if Tesaro successfully wins approval for an IV formulation, and the market for treating low vitamin D in chronic kidney disease is massive given it includes millions of addressable patients. Furthermore, Opko Health's acquisition of specialty lab Bio-Reference Laboratories in 2015 means that the company's got a steady flow of cash coming in. In Q3, Opko Health's consolidated revenue was $298 million.
There's no doubt Opko Health would have benefited a great deal from milestone money from Pfizer, and its pathway to profitability would have become much clearer, too. However, the company's still got a balance sheet that includes $145 million in cash exiting September, and it's got potential revenue drivers this year that could still make 2017 a growth year.
Overall, it's hard to bet against Frost. After all, he's achieved incredible success as the founder of Ivax, which he sold to Teva Pharmaceutical for over $7 billion, and later as chairman of Teva. For that reason, investors might not want to sell Opko Health shares following hGH-CTP's disappointing data. Instead, it might be better to track how sales of Varubi and Rayaldee trend over the next few quarters before making a decision.