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Where Will Opko Health Inc. Be in 5 Years?

By Keith Speights - Oct 17, 2017 at 6:03AM

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The ingredients are all there for tremendous success over the next few years for Opko. But will the company deliver on its potential?

Opko Health (OPK -5.74%) has had a rough year no matter how you look at it. So far in 2017, shares of the pharmaceutical and diagnostics company are down more than 20%. At one point, Opko stock was knocking at the door of a 40% year-to-date decline.

But what will the future look like for Opko Health? I don't pretend to have the ability to foresee what will happen, but there are a couple of potential scenarios that I think could unfold. Here's where Opko could be five years from now. 

Hand holding pen over notepad with picture of light bulb with 2022 drawn on it

Image source: Getty Images.

If all goes well

Despite its subpar performance in 2017, Wall Street still has great expectations for Opko Health. Consensus Street estimates call for solid annual earnings growth of 12% over the next five years. The average one-year price target for Opko stock among analysts is $13.25 -- around 90% higher than the current share price.

Opko could be a much more attractive stock in 2022 if all goes well. One key prerequisite is Rayaldee achieving its potential. The Food and Drug Administration granted approval for Rayaldee in treating secondary hyperparathyroidism (SHPT) in adults with stage 3 or 4 chronic kidney disease (CKD) in June 2016. Some analysts think the drug could reach peak annual sales of around $700 million. If Opko gets even close to that level by 2022, the company should be in good shape.

Another positive development would be for a late-stage study of Fermagate in treating hyperphosphatemia in CKD patients on dialysis to turn out really well. If that happens, Opko could have a second kidney disease product on the market before 2022.

Speaking of late-stage studies, the one underway for human growth hormone product hGH-CTP in treating children holds huge potential for Opko and partner Pfizer. The pediatric demographic makes up roughly 80% of the total market for human growth hormones. 

Five years out is also far enough in the future for some of Opko's mid-stage candidates to potentially be on the market. OPK88003, a GLP1-glucagon dual agonist, holds potential for treating type 2 diabetes and obesity. Intravenous Factor VIIa hemophilia drug is another candidate in phase 2 testing that could be a winner down the road.

Opko's diagnostics business could also be firing on all cylinders before 2022. BioReference Labs (BRL) could generate growth for the company, especially if the 4Kscore prostate cancer test picks up momentum. Barring a setback from the FDA, Opko should also have its Claros point-of-care prostate specific antigen (PSA) test on the market in the near future. 

Assuming all goes well, Opko Health could be a profitable and growing business by 2022. It's not unrealistic to see the company posting revenue of more than $2 billion annually by that point -- again, if things go right.

A pessimistic outlook

What would Opko Health look like in 2022 if we took those rose-colored glasses, threw them to the ground, and stomped on them for a while? Pretty bad.

The pessimistic outlook for the company would be a future where Rayaldee turns out to be total flop. After more than a year on the market, Opko's total sales (which has yet to be recognized as revenue and is instead being accrued) stood at $3.7 million at the end of the second quarter. There remains a real possibility that Rayaldee simply doesn't deliver as promised.

An absolute nightmare for Opko would be multiple failures with its pipeline. Remember that the company already experienced a setback in late 2016 with hGH-CTP in treating adults. A failure for the growth hormone in treating children would sting even more. 

As for Opko's mid-stage candidates, the overall odds aren't in Opko's favor. Overall, only around 30% of all phase 2 drugs advance to phase 3. And only a little over half (58%) of these late-stage programs are submitted for regulatory approval.

It's also not difficult to envision a scenario where Opko's diagnostics business continues to struggle. Putting all of this together, a pessimistic view of where Opko Health will be in 2022 could mean a company with revenue largely unchanged from where it stands now. Unfortunately, that could also translate to a lower stock price for Opko.

Best guess

I'm more optimistic about Opko Health's prospects than pessimistic. My view is that Rayaldee will pick up momentum thanks to Opko putting more feet on the street with its sales team and updated standard-of-care guidelines for SHPT that should benefit Rayaldee.

I'm also cautiously optimistic about Opko's pipeline, including hGH-CTP. My biggest question marks are with the diagnostics business. Whether 2022 looks more like the bright scenario or the dark scenario is perhaps a toss-up.

I don't always agree with Wall Street analysts, but in Opko Health's case, my take is that they're closer to being right than wrong. I'd like to see the sales results for Rayaldee for the next couple of quarters before giving a full endorsement for the stock, but my best guess is that the picture will improve for Opko in the coming years.

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