Iconic healthcare entrepreneur Phillip Frost is at it again. After serving for years as Teva Pharmaceuticals' chairman, the billionaire healthcare investor is in the top seat at Opko Health (NASDAQ:OPK), and he's knee-deep transforming it into a diagnostics and biopharma powerhouse. In Opko Health's fourth-quarter earnings conference call, Frost laid out his blueprint for Opko Health's future. Read on to see what Frost says are the key opportunities ahead for this company.
Reshaping prostate cancer testing
"The reimbursement and marketing and sales teams are doing a remarkable job with helping make our 4Kscore test a real contribution to men's health [and] the commercial success it deserves to be," Frost said.
Opko Health won approval to begin marketing its novel prostate cancer screening test in 2014. However, winning reimbursement from payers has been challenging, and the company's 10-person sales team, while making progress, had yet to make significant inroads.
That could be changing, however, now that Opko Health owns Bio-Reference Labs, which has 400 salespeople and existing relationships with payers that could accelerate the adoption among doctorsof the 4Kscore test. So far, Opko Health has trained and set loose 200 of Bio-Reference Labs' salespeople, and the company reports monthly volume for the 4Kscore test is growing at a double digit rate. If that pace keeps up, then 4Kscore could exit 2016 as a much bigger contributor to the company's results than it is today, especially if management can negotiate reimbursement rates that are near its $1,900 target.
New kid on the block
"I'm pleased with the progress of all our development projects and thrilled about the second of our projects hopefully to be approved by the FDA soon, Rayaldee," Frost said.
The FDA is scheduled to issue a go/no-go decision on Opko Health's Rayaldee on March 29, and if the regulator gives Rayaldee a green light, then Opko Health will attempt to carve out sales in a market it values at $12 billion.
Rayaldee is a vitamin D prohormone that boosts the vitamin in patients with chronic kidney disease, reducing the risk of secondary hyperparathyroidism (SHPT). Currently, SHPT is treated with vitamin D supplements and therapies that boost calcium levels in the blood. However, Rayaldee may be safer and more efficacious than those approaches.
Of course, there's no guarantee that the FDA will approve Rayaldee or that doctors will prescribe it. And since Rayaldee is an entirely new approach, it could be slow going at first as the company educates doctors on Rayaldee's benefits.
Nevertheless, Opko Health expects to launch Rayaldee in the second half of this year with a 25-person sales team, and that means investors should have a pretty good idea of its commercial potential within a year or so.
Entering a competitive market
More from Frost:
Varubi, or rolapitant, was recently approved for our partner Tesaro. Tesaro held their fourth quarter conference call last Thursday and they indicated Varubi represents a $1 billion market opportunity. They also reported significant progress with payers noting that during the first 60 days of launch an estimated 120 million covered lives gained access to Varubi under insurance plans.
Certainly, gaining approval from payers is key to the success of any drug, but access alone doesn't guarantee commercial success. That's because the market for treating chemotherapy-induced nausea and vomiting (CINV) is mature and competitive.
Nevertheless, Opko Health's partner on the drug, Tesaro (NASDAQ: TSRO), thinks Varubi is a "$1 billion market opportunity." The person behind tapping into that opportunity is Tesaro's CEO. Lonnie Moulder. Previously, Moulder successfully developed and commercialized the top-selling CINV drug, Aloxi. If Moulder can catch lightning in the bottle a second time, then Opko Health could benefit handsomely from both sales-based milestones and double-digit royalty revenue.
Tying it together
Frost isn't just Opko Health's CEO: He's also the company's biggest shareholder. He's been steadily increasing his stake in Opko Health as shares have dropped, and he directly or indirectly, via his Frost-Gamma fund, owns 182.3 million shares. Clearly, Frost is confident that he can overcome the challenges facing the company and grow sales to a point that justifies his massive position. Only time will tell if he's right, but Frost's track record means it may be worth buying shares in this stock, too.