What: Shares of Opko Health (NASDAQ:OPK), a developer of novel drug candidates as well as diagnostic tests, roared higher by 19% in December, according to data from S&P Capital IQ, after announcing a global agreement with Pfizer (NYSE:PFE) for hGH-CTP.
So what: Under the terms of the deal for hGH-CTP, a treatment for growth hormone deficiency in adults and children, Opko will receive an upfront payment of $295 million and is eligible to net an additional $275 million in certain regulatory milestones. In return for this bountiful upfront and regulatory milestone pay, Pfizer will receive the global rights to hGH-CTP.
In addition to a hefty upfront payment, Opko is also eligible to receive royalty payments related to the commercialization of hGH-CTP in adults. If a pediatric version of hGH-CTP is launched as well, the royalties will "transition to gross profit sharing for both hGH-CTP and Pfizer's [existing HGH drug] Genotropin."
When it comes to expenses, Opko will take the lead on all clinical activities and fund key development programs for hGH-CTP. In turn, Pfizer will fund all additional indications and post-marketing studies, as well as handle all commercialization and manufacturing activities.
Now what: Prior to announcing its deal with Pfizer, Opko had ended the latest quarter with $118.3 million in cash. On pace to burn through $80 million to $90 million per year, Opko was probably on pace to seek a cash raise sometime in late 2015 anyway. The Pfizer deal allows Opko a cash runway of probably three to four years, if not more, and alleviates any sort impending cash crunch, allowing it to focus on its fairly deep pipeline.
As my Foolish colleague Todd Campbell noted shortly after the deal was announced, the move by Pfizer, in addition to adding to its bottom-line, preserves Genotropin from losing market share to hGH-CTP. Human growth hormone therapies are a $3 billion market in the U.S., and it's possible that Pfizer could become a dominant player in that market now.
With Opko expected to turn the corner to profitability in 2017, it's possible that its shares could head even higher. As for me, I'd prefer to stick to wait this one out, as Opko has a nasty habit of underwhelming when it comes to beating or even meeting Wall Street's earnings projections. Until I see definitive improvement in terms of smaller quarterly losses, I plan to stay firmly planted on the sidelines.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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