Carson Cheung

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Our Top Pick of 2017 (our highest level of confidence) --- OPK If OPK can breakout above $11.85 (52 week high), we could see a massive short squeeze (short interest: 71 millions shares). Major institutions are looking at OPK and we can't imagine what will happen if they try to accumulate. OPK is a stock that everybody on CNBC will likely be talking about very soon. We are discovering OPK at the ground-floor before the rest of the investment community. So many billion dollars products in Opko's portfolio. ========== OPKO Health (NYSE: OPK) OPKO Health is a young, mid-sized biotech firm that breaks down into two divisions: diagnostics and mid-stage therapeutics. The company's growth strategy has involved investing in companies with valuable proprietary technology and bringing those products to market. Diagnostics (Doctor on a Chip) Within diagnostics, OPKO offers the 4Kscore — a breakthrough prostate cancer screen — as well as a device called the Claros PSA test. The device is essentially a desktop microchemistry lab that allows doctors to receive PSA readings without having to send out the sample. Claros_OPK_desktop_lab The benefit of the Claros PSA is twofold: First, the test provides results in as little as 10 minutes at the location where the patient is tested. Second, doctors will be able to hold onto more profit rather than passing it off to outside labs. We believe patients will prefer these immediate results to the stress of waiting for lab results, while doctors will prefer the long-term financial benefit of keeping diagnostics in house. In total, nearly 25 to 30 million PSA tests are performed in the U.S. each year. At an average reimbursement of $30 per test, that's a potential $900 million annual market for OPKO. OPKO's in-house testing should capture a significant portion of these tests, providing the company not only with direct revenue from Claros PSA, but also with a solid position to market follow-up 4Kscore testing. The recent rollout of the Claros PSA reflects the overarching strategy of OPKO's diagnostics division: in-house or point-of-care testing — something we like to call “doctor on a chip.” The initial target market for OPKO's desktop lab is prostate cancer, but the company is developing a point-of-care system to address a wide range of applications to include: Prostate-specific antigen 4Kscore Vitamin D Testosterone Alzheimer's Hepatitis B HIV Syphilis Fertility Menopause Cardio panel Because of the convenience and financial benefit of point-of-care diagnostics, we expect OPKO to have strong penetration in whichever of these markets management decides to pursue. Therapeutics OPKO's drug pipeline runs incredibly deep. The company is developing products to treat a variety of conditions including Parkinson's, obesity, hemophilia, influenza, and kidney disease, just to name a few. We won't go into every therapeutic in this report, but we will touch on OPKO's top product candidates in terms of revenue potential. Rayaldee Rayaldee is a new vitamin D formulation (yes, vitamin D) drug designed as a treatment for patients with stage 3 and 4 chronic kidney disease (CKD). The candidate met primary endpoints for Phase III trials in late 2014 and has the largest market potential of any of OPKO's candidates. The drug has received heavy attention recently, with an NDA (new drug application) filed and approved in 2015. The drug will target approximately 4 million patients in the U.S. alone at a price of about $4,000 per year of treatment. Based on this, we calculate a potential market size of $16 billion. The current commercial landscape for Rayaldee is ripe for the taking. Existing treatments for CKD are either ineffective or have significant safety issues, and Rayaldee's clinical results compared favorably to what's currently available on the market: nutritional vitamin D and hormones. With a significant portion of the market left untreated due to safety and efficacy concerns, OPKO's Rayaldee should take a significant share since its FDA approval. Rolapitant Rolapitant is a treatment for chemotherapy-induced nausea and vomiting (CINV) — an increasingly common condition in patients with cancer. CINV is estimated to afflict upward of 70% of cancer patients undergoing chemotherapy. If not prevented, CINV can result in a delay or even discontinuation of chemotherapy treatment. OPKO originally purchased Rolapitant for $2 million and flipped it to drug company Tesaro for $6 million, a 10% equity stake in the company, and further related payments. OPKO is looking at $115 million in milestone payments from Tesaro ($30 million in regulatory and initial sales milestones and $85 million in annual net sales milestones), as well as double-digit royalties on all sales. Clinical data from three separate and completed Phase III studies suggested that Rolapitant is the most effective treatment developed right now. Patients taking Rolapitant consistently had higher completion rates in chemotherapy programs and higher rates of no nausea, which would suggest strong market penetration on approval. It's estimated that peak sales for the drug may be as high as $1.5 billion. hGH-CTP In 2013, OPKO purchased Israeli biotech company Prolor, obtaining the rights to hGH-CTP — an orphan drug in the U.S. and EU designed to be a substantial upgrade to standard human growth hormone (hGH) replacement therapy. The drug is based on a carboxyl terminal peptide (CTP) platform, which makes it possible for patients taking hGH-CTP to only need one injection per week versus one per day as with traditional hGH therapy. Think time-release oral capsules, but for an injection instead. In Phase III trials, hGH-CTP has already shown comparable measurements to current treatments on both safety and efficacy. Combined with the added convenience of once-a-week injections, we expect hGH-CTP to take a large chunk of the $3 billion-plus market. At least one big pharmaceutical company seems to agree with this thesis, as OPK has already entered into a global development agreement with $215 billion drug manufacturer Pfizer (NYSE: PFE) regarding hGH-CTP. The Pfizer agreement included a $295 million upfront payment and up to an additional $275 million in milestone payments. OPKO will be eligible for royalty payments upon commercialization. Financials and Recommendation As of its most recent quarter, OPKO reported cash and cash equivalents of $221 million, already providing the company with strong liquidity and the ability to continue the development of its many product candidates. OPKO has continued to increase R&D spending related to its ongoing Phase III programs such as hGH-CTP and has recently incurred costs associated with a clinical validation study for the 4Kscore. With the 4Kscore now on the market and several Phase III candidates approaching commercialization, though, we expect these operational costs should drop substantially, pushing OPKO towards the green. OPKO's current burn rate is approximately $40 million a quarter, giving the company several more quarters of working capital. Of course, this scenario would assume zero growth on the top line and an extension of current clinical trials — neither of which we're expecting to happen. OPKO's 4Kscore first launched in March 2014, meaning the full effect of revenues are still just being realized. We're expecting further traction in 2017.


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