Issues Presentation Outlining Viable Paths to Unlocking OPKO’s Intrinsic Value, Which is ~3x the Company’s Current Market Capitalization Based on its Diagnostic and Pharmaceutical Assets
Releases Letter to
Underscores that Sian has the Ability to take Appropriate Action in Accordance with
“OPKO’s stockholders have been forced to endure billions of dollars in losses due to, in our view, leadership’s missteps, poor communication and self-interested decisions. Rather than take prompt steps to increase stockholder value, we contend that Chairman and Chief Executive Officer Dr.
“Sian has spent months conducting industry research, holding conversations with ex-employees and consultants, and engaging with potential acquirers for OPKO’s presently undervalued assets. We have provided OPKO with a roadmap for success and tried to sustain a productive dialogue. It is time for a viable, value-enhancing roadmap to be implemented at OPKO.”
A summary of Sian’s detailed presentation is as follows:
We believe BioReference (“BRL”) is worth
- COVID-19 and serology testing revenue in 3Q’20 will be over
$200 million while BRL’s base business has recovered more rapidly than Quest and LabCorp. - BRL’s 4Q COVID-19 revenue will increase >20% to >
$250 million .- BRL’s base business will grow ~10-15% for the foreseeable future.
GeneDx , Oncology and Women’s Health are the three fastest growing divisions in the industry, which comprise 40% of BRL’s business growing an average of 15%. If the remainder of the business grows just half of that, 10%-15% is highly achievable. - BRL has significantly increased insurance coverage, recently becoming one of just five labs, and one of just three national labs with scale, to be selected for United Healthcare’s Network. BRL also recently won the in-network contract for Humana and
Blue Cross Blue Shield inTexas .- Quest has named a similar opportunity as
$4 billion total available market of which they assume 25% share, anticipating$1 billion growth in revenue. If BRL achieved just half of that, this would unlock an additional$500 million in revenue (more than 50% of BRL’s entire revenue base in 2019). - BRL has signed multi-year significant strategic partnerships with, among others,
Pediatrix Medical Group, Inc. , a 2,200 nationwide physician network, Westchester Medical Center’s 10 hospital network that conducts over 7 million tests on a yearly basis, exclusive partnerships with the NFL, NBA and MLS, as well as government contracts with theCenters for Disease Control and Prevention to test weekly all 950 schools inNew York City and to test all 50,000 NY MTA employees on a weekly basis. - Last quarter BRL’s profit margins were ~10% against Quest and LabCorp reporting ~27% profit margins. If BRL only made up half of that difference, BRL’s annualized EBITDA would be >
$400 million a year.
- Quest has named a similar opportunity as
- BRL’s base business will grow ~10-15% for the foreseeable future.
- Somatrogon, OPKO’s hGH crown jewel is worth north of
$2 billion . Pfizer paid OPKO~$600 million upfront for OPKO to complete clinical trials across the world (over 24 trials in 83 countries) from 2017-2019 and Pfizer announced just a few weeks ago that the trial has passed Phase 3. Pfizer also discussed Somatrogon’s 2021 launch on a recent earnings call. OPKO is owed ~20% royalties on both of Pfizer’s currently selling$500 million hGH drug, as well as on sales of Somatrogon and an additional$275 million in milestones. We estimate this will produce an annual profit stream of~$200 million .- Somatrogon’s only competitor, Ascendis, has no commercial partner, little to no revenue and has never successfully commercialized a drug. Further, due to Somatrogon’s orphan drug status, it is afforded regulatory protections in the
U.S. andEurope for 7-12 years, effectively making it among the most consistent drugs in the industry with scarcity value due to the dearth of 9-figure royalty drugs in the market.$2 billion is extraordinarily conservative: Ascendis, trades at a market capitalization of$8.5 billion = ~3 times the entire value of OPKO.
- We believe many royalty partners would pay OPKO >
$1 billion TODAY, for the rights to just a portion of the Somatrogon royalty stream because we are in an environment starved for yield with interest rates at all-time lows and the scarcity value of the asset, its regulatory protections and top-grade commercial partner in Pfizer makes Somatrogon among the highest quality royalty assets in the market.
- Somatrogon’s only competitor, Ascendis, has no commercial partner, little to no revenue and has never successfully commercialized a drug. Further, due to Somatrogon’s orphan drug status, it is afforded regulatory protections in the
Today on OPKO’s earnings call, investors and sell-side analysts will have the ability to ask management important questions. We believe if investors ask these questions and read through our presentation, they will have little trouble in understanding the staggering disconnect between OPKO’s current trading value and its current market value:
Do you believe Somatrogon can produce a 9-figure royalty stream, and given OPKO is not getting anywhere near the true value for the asset today, would you consider selling some of the royalty, which would bring in near-term cash to be used to purchase undervalued shares back, a dividend or other accretive uses? If so, do you believe there is interest for these assets?
1) BioReference’s margins are less than half that of Quest and LabCorp. Is there an opportunity to close that margin gap at least partway, or is 10% the maximum BioReference can produce?
2) Dr.
3) Rayaldee is already a royalty stream, licensed to Vifor Pharma in
4) Is management confident in the prospects of success for Rayaldee’s trial as a treatment of COVID-19 for mild to moderate symptoms with two primary endpoints?
- Rayaldee has been fast tracked for approval for treatment of COVID-19 for mild to moderate symptoms with two primary endpoints. One endpoint was reached already in its Phase IV trial. OPKO has done a poor job of marketing this fact, allowing unproven, reckless drugs like anti-malaria tablets to be touted by the President and others as a treatment, but it's little known that OPKO is sitting on a >
$1 billion opportunity that could save countless lives.2 - We trust should investors ask management’s belief in the prospects of success for the trial, they will be encouraged by the answer, and magnitude of the opportunity.
We believe if investors ask these questions on today’s earnings call, it will become quickly clear why there is such a staggering disconnect between OPKO’s market price and its intrinsic value.
We expect management to cite the inflection and tailwinds in their business, but should any investors remain unsatisfied, we will be hosting a conference call to be announced after the earnings release.
About
Founded by veteran portfolio manager
Contacts
Profile
gmarose@profileadvisors.com / ckiaie@profileadvisors.com
_______________
1 As disclosed in OPKO’s recent 10-K filing.
2 https://medium.com/microbial-instincts/the-first-clinical-trial-to-support-vitamin-d-therapy-for-covid-19-906a9d907468
Source:
2020 GlobeNewswire, Inc., source