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Results from a phase 3 study of Opko Health's (NASDAQ:OPK) long-lasting human growth hormone, hGH-CTP, are expected before the end of the fourth quarter and if results are positive, then it could result in a big payday for this burgeoning biotech.

In 2014, Opko Health licensed global rights to hGH-CTP to Pfizer, Inc. (NYSE:PFE) in a deal that includes hundreds of millions of dollars in potential regulatory milestones, plus royalties on eventual sales.

Improving patient treatment

Opko Health's hGH-CTP is a once-weekly alternative to existing human growth hormone therapies that are taken once-daily. If hGH-CTP delivers positive efficacy and safety in phase 3 trials and it eventually wins FDA approval, then it could represent the first substantial advance in human growth hormone treatment in 20 years.

Currently, the human growth hormone market is dominated by Pfizer's Genotropin, which commands 23% of market share. Genotropin, a therapeutically equivalent drug to human growth hormone, is used to treat children who were born small, but have not achieved catch-up growth by age two. Genotropin is also used in adults and children who have growth hormone deficiency. 

Opko Health was able to extend the half-life of human growth hormone by using an approach that doesn't include polymers, encapsulation techniques, or nanoparticles. Since Opko Health's approach is proprietary and hGH-CTP has a significant dosing advantage over Genotropin, Pfizer agreed to buy global rights to hGH-CTP in December 2014.

As part of that deal, Pfizer paid $295 million to Opko Health upfront. Pfizer also agreed to pay up to an additional $275 million in regulatory approval milestones and double-digit royalties on global sales. Further, if future studies also show that hGH-CTP works in children, then Pfizer has agreed to split future profit with Opko Health on both hGH-CTP and Genotropin. 

Big potential

The human growth hormone market is worth roughly $3 billion annually and growing, and sales of Pfizer's Genotropin totaled $617 million in 2015 and $152 million in the second quarter of 2016.

Since hGH-CTP could significantly improve patient adherence by reducing the number of weekly doses, I think it can win away a significant share of Genotropin's sales to adults. The peak sales opportunity for hGH-CTP is greatest, however, if Opko Health can prove hGH-CTP is effective in kids. A phase 3 pediatric trial is supposed to begin soon and that has Opko Health's management targeting trial results in about two years.

Overall, milestones tied to positive phase 3 trial results in adults this year could improve Opko Health's balance sheet over the next year and an eventual launch of hGH-CTP could add profit-boosting tailwinds.

Thanks to Opko Health's acquisition of Bio-Reference Labs last year, and FDA approvals of Tesaro's Varubi in 2015 and Opko Health's Rayaldee this summer, industry watchers think that Opko Health's earnings per share could improve from a $0.05 loss this year to a $0.03 gain next year. Since a launch of hGH-CTP could provide Opko Health with a cash windfall and another profit-friendly source of sales, investors should pay close attention to Opko Health's press releases over the next few months.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.