Sian Capital Highlights Paths to Meaningful Value Creation at OPKO Health
October 29 2020 - 5:20PM
Sian Capital, LLC (together with its affiliates, “Sian” or “we”), a
sizable stockholder with beneficial ownership of approximately 3%
of OPKO Health, Inc.'s (NASDAQ: OPK) (“OPKO” or the “Company”)
outstanding common stock, today released a detailed presentation
outlining viable paths to unlocking the Company’s tremendous upside
potential following years of significant underperformance and value
destruction. In addition, Sian released a demand letter that it has
sent OPKO pursuant to Delaware Law. These materials are available
at https://siancapital.com/resources/.
Anish Monga, Sian’s Managing Partner and
Portfolio Manager, commented:
“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. Phillip Frost and the
Company’s leadership team have ignored high-potential opportunities
in the marketplace and demonstrated an inability to unlock the true
value of the Company’s prized assets. In addition, we believe Dr.
Frost and his associates have given disinterested stockholders
cause for significant concern by filing for approval under the
Hart–Scott–Rodino Antitrust Improvements Act to increase their
ownership to more than 50% and by purchasing stock (at all-time
lows) frequently from January through June. It is time for OPKO’s
leadership to honor its fiduciary duties and quickly move to
deliver the value that long-suffering investors deserve.
“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 $3
billion to $6 billion given its true annual earnings power is
between $300 million and $400 million.
- 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 in Texas.
- 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 the Centers
for Disease Control and Prevention to test weekly all 950 schools
in New 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.
- 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. and Europe 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.
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. Jon R. Cohen, CEO of BioReference, has described the
COVID-19 “halo effect” which has helped grow the BRL base customer
business, in turn increasing the base business growth rate. Is this
still the case?3) Rayaldee is already a royalty stream, licensed to
Vifor Pharma in Europe and JT in Japan, however OPKO has an
89-person sales force1 to sell Rayaldee in the U.S., which is
subscale. We believe management should consider also licensing the
current use of Rayaldee in the U.S., thereby incurring $75 million
in cost savings while still receiving a rapidly growing royalty
stream. Is management open to considering additional usage licenses
of Rayaldee in the U.S.?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 Sian Capital
Founded by veteran portfolio manager Anish
Monga, Sian Capital, LLC is a New York-based asset management firm
that employs a focused, event-driven investment approach. Sian’s
unique mix of cross-sector experience and activism expertise
enables it to identify and invest in what are often overlooked or
under-covered investment opportunities.
Contacts
ProfileGreg Marose / Charlotte Kiaiegmarose@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
Opko Health (NASDAQ:OPK)
Historical Stock Chart
From Mar 2024 to Apr 2024
Opko Health (NASDAQ:OPK)
Historical Stock Chart
From Apr 2023 to Apr 2024