Investment Thesis on Opko Healthcare Incorporated

INTRIERI FAMILY STUDENT MANAGED FUND

Opko Health, Inc. (NYSE:OPK)

Max Morrow – President and Chief Investment Strategist & Lead Analyst, Healthcare

Current Price	$7.14
Target Price	$12.83
Appreciation Potential	72.97%

Company Overview

Opko Healthcare, Inc., a healthcare company, engages in the diagnostics and pharmaceuticals business in the United States, Ireland, Chile, Spain, Israel and Mexico. The company’s diagnostics segment operates Bio-Reference Laboratories, which offers a myriad of services in the area of diagnosis, evaluation and treatment of diseases. The company was incorporated in 1991. Opko started in Miami, Florida, but has proven itself capable of expanding its geographic and therapeutic bounds. In addition to research and development of ophthalmic drugs, the company also engages in the research of other biopharmaceuticals tailored toward infectious diseases, neurology and oncology.  It has development programs for vaccines and molecular diagnostic tests. Opko Health also offers a variety of over-the-counter drugs throughout Latin America.

Source: Hoovers Research

Industry Indicators

• ·         US consumer prices for medical care commodities, which have the potential to impact the profitability of pharmaceutical firms, increased 4.1% in February 2017 compared to the same period in 2016.

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•       US nondurable goods manufacturers' shipments of pharmaceuticals and medicines, which serves as an indicator of pharmaceuticals production, rose 5.2% in January 2017 as compared to the same period in 2016; a major improvement.

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•       US retail sales for health and personal care stores, which could be an indication of consumer sales of pharmaceuticals, increased 6.1% in the first several months of 2017, as opposed to the same period in the preceding year.

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•       The Pharmaceuticals industry has not been so prosperous in the last several months. On average, major pharmaceutical manufacturers have seen a stock price decline of around -2.91 percent.

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•       Several points of interest that will help to drive the pharmaceuticals industry come from an increase in U.S. spending on pharmaceuticals, as well as the strong surge in new medicines.

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•       The industry is expecting to see compounded annual growth of around 5.60 percent, from $400 billion in 2015 to $548.4 billion by 2020.

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•       The industry will be adding over 300,000 jobs within bio-pharmaceutical organizations and vendor companies within the overall supply chain by 2021.

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•         Due to a diverse and outstanding healthcare system, easily accessible healthcare and trends of self-medication, U.S. pharmaceutical consumption is relatively high.

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•       Cancers of the respiratory and digestive systems, lymph nodes, prostate and breast are the leading cancers among Americans and cancer vaccines accounted for more than 58 percent of pharmaceutical market share in 2014.

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•          Approximately 105 vaccines were in development in 2016, with many of those in the phase of clinical testing and FDA approval.

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•       Global market for new innovations expected to grow to $7.5 billion by 2022, from $2.5 billion in 2015.

Source: Hoovers Research

2016 PHARMACEUTICALS IMPORTS/EXPORTS

Imports	$75.27 billion
Exports	$35.94 billion

News and Events

• ·         Guggenheim sees 200%+ potential upside for Opko Health, Inc., with a buy recommendation at $25.

o   CEO and Chairman, Dr. Phillip Frost has displayed his capability of successfully building the company up.

o   Rayaldee sales could reach ~$700 million in 2021. Rayaldee has been approved for the treatment of Secondary Hyperparathyroidism (SHPT) in adults. The product has been granted a patent that could protect it up until 2034.

o   Opko’s pipeline could have the potential to generate several billion dollars in sales. Sales in the pipeline drugs target a potential ~$1.78B market.

• ·         Opko Health CEO and Chairman also purchased 21,600 shares of Opko stock on Monday, April 3^rd. The purchase agreement was for $7.82 per share, totaling $168,912.00. With this purchase, Frost now owns 3,068,951 shares of the company, valued at approximately $23,999,196.82.

Source: Sleek Money

Investment Risks

• ·         Opko has had some major setbacks which has caused the company to lose approximately a third of its value since late December.

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•       Poor performance of the diagnostics business and Rayaldee’s slow launch have weighed in on the share price after the Q4 report.

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•       Opko Health maintains an Altman Z-Score of 3.62, placing it in the safe zone for general manufacturing companies.

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•       Opko has a current cash to debt ratio of 1.61, which essentially means that the company has the ability to pay of any debt with cash on hand.

Source: NASDAQ

Executive Compensation

Executive compensation for all key executives totals to $12,851,400, with a strong 5 year growth trends in compensation across all of the key executives. Dr. Frost’s salary trend has increased from $469,800 in 2011, remained the same at year end 2012, then grew to 2,472,508 in 2013, to 2,614,400 in 2014 and finally, to 3,835,600 in 2015.

Source: Morningstar

Investment Thesis

I believe that Opko Healthcare, Incorporated has demonstrated the ability to grow significantly, through strong initiatives to push life-saving pharmaceuticals through the healthcare industry. With strong fundamentals, I am able to conclude a buy recommendation for this company.

One of the things that stood out to me throughout my research on the quantitative side was through looking at an analysis of earnings growth for the next several years. Although the company exhibited weak earnings in 2016 at -0.05 and had projected estimates to be even lower throughout 2017 to end at -0.10, there is positive growth to be achieved, with 2018 earnings estimates of 0.08. The estimates for year end 2019 are projected to rise to 0.27.

Several of the risks associated with the company’s operations include some setbacks that declined their stock price by a third, as well as poor performance within the company and a slow launch of Rayaldee, which contributed to the stock price toward the end of the 4^th quarter.

Despite the setbacks that the company has experienced, revenues maintained 5-year growth of 112.83 percent. The negative earnings can be associated with the stagnant growth in operating income, which took a major hit following the year end of 2013. However, operating income has managed to begin rebalancing itself and head toward the positive direction with a 2014-2015 YoY improvement of 32.46%. The same trend can be noticed from 2015 to 2016, with a positive improvement of 25.59%.

CEO and Chairman, Dr. Phillip Frost has proven his ability to lead and improve the business state of Opko Health through the company’s upgrade in financials, turning Opko toward the positive direction. Because of a weak set of valuation models due to the high growth potential, the intrinsic value of the company was derived heavily from qualitative information acquired through careful research through several of the resources offered by Penn State University’s Libraries. These resources include Thomson Reuters as well as Hoovers Research. The Bloomberg terminal was also used in the analysis.

The methodology for valuing the company consists of the evaluation of two models within the industry comparable component of the research protocol. Industry ratio averages (including P/E ttm, P/B and P/CF ttm) as well as the industry peg ratio was used in the determination of the price for the stock, which I concluded to be ~$11.52, with a current stock price of $7.14. Along with consideration by several other sources, as well as a model I created to estimate an intrinsic value based on ordinary least squares regression, I conclude a conservative intrinsic value for Opko Healthcare, Incorporated of ~$12.83.

Simple Truths of Leadership and Service

Hi, everyone!

One thing came to mind while I was typing up a scholarship essay, and that was the idea of what it really means to be of service to others, as well as the implications of being a true leader.

"Listening is wanting to hear." - Jim Cathcart

I think that in devoting your time to serving others, you first need to gain an understanding about learning from past experiences, in order to build the future. In preparing for service, it is ideal to come across the voices and thoughts of individuals that have made the great strives towards innovation in the present. Whether science/technical, philosophical, or business related, every innovation has had a set of minds behind it that helped to make it great. Taking from what others know is a key input into creating a better outlook for the future, in whatever leadership or service endeavor is chosen. Jamaican politician and author, Marcus Garvey, once said that "A people without the knowledge of their past history, origin and culture is like a tree without roots." This can certainly be applied to the idea that looking back at the past is what helps to generate future successes, and something that good leaders certainly take into consideration in their service to others.

Learning is one aspect of molding a leader. Without it, no progress can be made. But there is another quality of leadership and service that stands out, and that is the ability to actually commit to doing service, where others would put it off, or simply not have the motivation to do it at all. When someone takes the label as a leader, they have an idea in their head, as well as ways to actually implement the ideas. With this, it is crucial in understanding that when going to do service, responsibility must be taken, and therefore, there needs to be commitment and motivation in doing so. Love of humanity is generally a strong motivator for those that do charity for those less fortunate. Patriotism is what drives the courageous to defend the people they love. History is what drives educators to help others understand what the future should be. There should never be dishonesty or shame in being the first to take the responsibility to committing to service, because that is what creates a leader. I quote Mahatma Gandhi with "The best way to find yourself is to lose yourself in the service to others." With the understanding of taking responsibility to do something out of the ordinary, in service to others, a leader is created.

Upon understanding the past and its role in the modeling of leadership and service, as well as the ability to commit to responsibility others would not pursue, another important lesson is understanding the role of a boss, and that of a leader.

A boss can easily be described as someone who commands and gives orders to others. We have these in life. Work for a restaurant, or a clothing store. You WILL have someone that simply gives orders that are expected to be followed. On the other hand, a leader is someone who will go above and beyond to commit to service and charity while motivating others to follow along in their path. They will helps others to take the responsibility of service, even if done indirectly. 

Now, lets jump back into the early 20th century, to the story of a young Albanian nun. Born and baptized in Skopje, Republic of Macedonia, this young woman grew up with a devoutly catholic family, who sought to bring her up as one that was close with the church. In her earlier years, she attended school run by a convent, which she found as her calling to become a nun. Upon committing to her last profession of vows, she became inspired to teach others of the values of education, along with connecting students to the church. However, one day, during a train ride, she received a calling from a higher power, and knew that she was destined to do something for the greater good of humanity. Vowing to give up material possessions, while turning to a life of obedience and chastity, she began working with the slums of the poor and sick in India. Through her devotion, willingness to listen, and value of humanity, she would open a school and home in India for the poor and the sick. Agnes Gonxha Bojaxhiu, better known as Mother Teresa, gave her life to helping others in their time of need, and providing for them a light of hope. She definitely proved her leadership and service in the humanitarian work she did. Doing what others would never even think to do is what makes her stand out as a true leader.

“At the end of life we will not be judged by how many diplomas we have received, how much money we have made, how many great things we have done. We will be judged by "I was hungry, and you gave me something to eat, I was naked and you clothed me. I was homeless, and you took me in.”

A leader doesn't give orders. A leader is not defined by making more money than their colleagues in what they do. A leader is defined by their ideas, attitude, and service to others.

I hope you found this to be a thought-provoking read on the simplicity of service and leadership!

Tech and Software Giants For The Future

Hey, everyone!!

Okay so I haven't posted in awhile due to my collegiate endeavors, but something came across my mind that I believe to be an extremely important topic.

The global technology spectrum is a rapidly growing field, and many aspects of it are continuing to emerge. With developments in software and technology in general, businesses are expanding the ways in which they put themselves out on the market. I was recently speaking with a Management Information Systems professor from Israel, and he was describing to me the vast expansion of software and technology throughout the world, specifically, how the nation of Israel has been such a huge player in the field of technology. They are the origin of many of our day-to-day inventions, such as the rooftop solar water heating system and the laser-projected keyboard.

Aside from the growing technology in nations like Israel, a look into software and technology systems may be a potentially worth-while investment. As companies' grow in their data systems, they develop new ways to communicate on larger bases, diagnose medical conditions, treat patients, and discover the universe. Something that I talked about in a previous post was about the expansion of big data and the internet of everything; two widely growing topics that will take over the way business interact with each other, as well as their clients.

When I spoke to the professor, one of the main things I touched on was the idea of making financial investments with growing tech and software firms. Although investments are not his strong-suit, he was very helpful in explaining that these two areas are growing exponentially, and will continue to do so as long as humans have their hands on the right tools to do so. So I thought about it, and wondered about how I could personally grow my wealth and knowledge with this idea.

In my strict opinion, I believe that this is going to be something worth looking into, because the world is growing. Corporations and governments are looking for faster ways to get certain jobs done. And this all comes down to the word efficiency. Efficient business techniques would require that companies keep up to speed with the growing world, and that would certainly include these companies to expand their tech and software levels.

Overall, I'd like to point out the obvious... No one single person can perfectly predict a future market, but one could use these simple ideas of growing technology and software to conclude where they should and should not put their money. Apple and Microsoft will fight to the death to keep their loyal customer bases, and in that, technology and software are far from being done, with regards to the limits of their expansion.

Thanks for reading!!

A Forbidden Land

I think a lot of people were eager to see the new movie (that was supposed to come out), The Interview, Starring Seth Rogen and James Franco. The movie's basic plot line was that the two protagonists, Rogen and Franco, were to go to The People's Republic of North Korea to interview the leader of the nation, Kim Jong-Un, because the leader was a fan of the work of the two men. However, there was an alternate plan in which the two were to assassinate the leader.

In short, the North Koreans did not take this as a light joke, and I didn't really expect them to, either...

So what did they (supposedly) do? Hack the company that created the film, of course! If the United States film production sector hasn't learned from the past, the North Koreans, ever since their split from the nation of Choson, have not liked the Americans!

Take this bit of information into consideration for a moment... North Korea, from the beginning, was formed by Kim Il-Sung. Since his death, which was extremely difficult for the North Korean people, the country has been run by his heir, Kim Jong-Il. After he tyrannized the same, brainwashed people his father claimed to have saved, what better way to continue the rule than to install the next heir to the Kim dynasty.

I'd like to reference to a book that I very much enjoy reading. "Under the Loving Care of the Fatherly Leader," a book written by Bradley K. Martin, gives an in-depth analysis of the nation of North Korea, from when it was formed, to the then current reign of Kim Jong-Il. The history of North Korea is something that should be understood before taking on the questions asked by people today concerning the actions and ideas of the North Koreans toward the United States and other nations as well.

In short, America went to war with the Koreans upon the division of the nation of Choson. They went to war in an attempt to stop the spread of communism. As is the result of every war between nations, people died. Many children were left without parents. Now of course they needed taken care of. So along came a man by the name of Kim Il-Sung, telling the children that their parents had been killed in the war. Children, believing most, if not all of what they hear from adults, believed in this man, and saw him as almost a father figure, offering his love and care. There's no better way to brainwash, then by indoctrinating the minds of very young children. He promised them homes and a fresh start. At the time of his death in 1995, the people were devastated, as they should've been.

So, from a quick analysis, I think that someone would be able to understand that the nation of North Korea would do anything in their power to serve and protect that which provided them everything.

Will the hacks continue? Will cyberwar become a mainstream form of terrorism between nations in the future? Who knows. But what is known, is that the United States has now appeased the Korean government, and they have what they want. All that can really be hoped for is the discontinuation of the attacks against the United States's computer networks. A very expensive mistake can leave a brutal mark for the future.

The Future of Social Civility

So I was just watching the news last night (CNN), watching the decision made by on whether or not to indict Darren Wilson in the case against him, in the shooting of Michael Brown. I just wanted to get some opinions and ideas across, even though the blogging of the situation has been publicly condemned.

I want to say, that I am not here to be a judge, I am not an attorney, and although I share more conservative ideas, I believe that this issue is something that does not take a side.

One thing that I noticed was the reaction to the verdict. My one big question concerning the situation, is simply, why? Why take what was a decision made legally, and turn it into mass destruction of a city? I literally witnessed the destruction of an economy, something that will take years and years to build back up. We are talking peoples' livelihoods and lives shattered because of a legal decision.

My personal opinion is that the decision made by the grand jury was an excuse for the people of Ferguson to go on a mass rampage, looting stores and destroying buildings. However, this does not reflect on all of the people of Ferguson. Some had absolutely nothing to with the events that occurred the night of the decision. Some merely took into consideration the requests of Michael Brown's family, and protest peacefully. Nevertheless, what is certain is that for many, it will be a long time until they can return to their lives and be able to provide for themselves, and possibly even their families.

The social and economic repercussions will be harsh for awhile, but what now needs to be looked at is civil rebuild, along with the long term repairing of the economy.

The decision was made by the grand jury, and that is law. Therefore, why would people expect that causing destruction would solve anything? With the crowd heating up, chaos was almost inevitable, and that is just how society is. I am not here to preach and deliver my sermon on racial equality and inequality, but what does need to be done is the assurance that these social and economic disasters do not arise again. This case is something that has set a precedent in what happens as a result of a grand jury ruling in favor of a white police officer killing an African American.

Furthermore, my question for society as a whole is, at what point does social civility rupture, and at what point during that period can we can the cause of the issue and turn it around in favor of the community, for the sake of peoples' safety, as well as their economic interests?

For now, the damage is done, and my thoughts and prayers go out to those who suffered the destruction of the city. What society needs to do now, is analyze the protest process in cases such as these, and pull out that trigger that causes crowds to rise to their emotional climax, and stop it.

What are your thoughts on this event, as well as the socio-political implications that can clearly be seen in the case of civil rights?

Bridging The Gap Between Reasonable Retirement And Financial Security

I hope everyone's having a good evening!

Alright so I thought of something that I think is a crucial issue that is arising, and will continue to be around for a long time now.

The question I ask is, how secure do you feel about retirement? I'd like to point out that this is not a question geared toward senior citizens. It's becoming a pressing issue, and is something that needs to be addressed both financially on a one-on-one basis as well as on a political level. Also, the interest in this topic came from why I want to be doing in the future with my career. As a prospective financial advisor, individuals coming closer to retirement are going to be extremely important clients to me, in regards to creating plans that will allow them to live comfortably upon their retirement and older years.

So really, what is the central issue pertaining to individuals' ability to retire with financial security. It is estimated that an individual should retire with savings equaling around one million dollars if they expect to be living on around a $30,000-$40,000 pension. With a nest egg of one million dollars, other costs must also be associated within the mix. These costs include healthcare, liabilities and other investments.

However, the country stumbles across another issue that will be affecting the ways in which individuals can comfortably retire. This issue comes across with the question, "What is going to happen to the Social Security Administration?" Simple, it is going to be GONE. And again, it is a very simple concept to understand that if one retrieves more money out of a system than is invested into it, it will disappear. Basic math, right? Yes, FICA and other Social Security expenses certainly may used as a tool to help those who are currently retiring. But come several or even less generations down the road, the Social Security net will no longer be able to hold anymore, and will ultimately collapse.

So really, what is something that is important to do now, in order to assure a comfortable retirement, and safe future into senior years? Saving will do it, partially, but there is always more that can be done. No single individual is expected to become the next John Paulson or George Soros, but what they are able to do is allocate their finances into different types of funds (Mutual Funds, ETFs) or IRAs (Individual Retirement Accounts) that will be able to aid in settling financial needs, and hopefully lift the burdens of everyday life when dealing with money. And the best part is, anyone can do it. I've been doing it since I was in the sixth grade. The stock market is definitely a tool I will be using to help myself financially. So my advice now before I become one, is, talk to an advisor, and see what they can do for you. And if not, find a reputable share builder like ETrade or Fidelity: companies equipped with the proper instruments to help any single individual with their financial health so that they can look forward to a brighter retirement.

I hope you enjoyed reading this post! Have a great week!

What Goes Around Comes Around

So it's really late... Maybe not for a college student, but it's still pretty late nonetheless. In this late hour, I started reading a little bit of Snowball, and thought about what my lecturer in my Labor and Employment Relations had to say about how Unions absolutely hate the idea of subcontracting, as if it were some evil force that will drive America into the ground.

Anyway, I began thinking about what he said... Something on the lines of "Unions hate subcontracting and outsourcing because it takes jobs away from people in certain industries, and gives them to people in other countries like Germany, Italy and China...

Now, I want to refer back to my last blog post in which I discussed the stagnant economies of Europe, and how their decline is affecting the United States. So for a minute, I thought, "Yeah we need to keep jobs in the United States," but then, I thought, maybe outsourcing is something that will help to get the world's economy back to a more stabile position. 

Now, I'm sure many would argue with this idea, and fire back with something like "That's an outrage to even believe that exporting jobs in manufacturing is good for the growth of America!" This is perfectly fine. Opposing views is what keeps competition stiff. And with that, I believe that in such a stagnant period we are in now, that maybe there is room for consideration to turnover certain manufacturing jobs to Europe. 

I want to get to my reasoning. Yes, at first, doing something like this seems very steep, dramatic, and even toxic to America. Yes, employment has gone down, but take into consideration that those individuals choosing not to pursue employment, are no longer considered in the unemployment numbers. A possible real fix to such an issue of unemployment may in fact be to subcontract and outsource a certain quota of jobs to European countries, in knowing that getting their economies better will, in turn, stimulate our economy, bringing jobs in manufacturing back to the United States, and creating better economic prosperity to European nations. 

Going back to my last blog post, I think that there would definitely be reciprocal movement when dealing with the economies of Europe and that of our own. In an overall simple statement, our markets are co-dependent, so when they prosper, in turn, ours could very well see a brighter future for employment opportunity as our markets begin to recover.

Thanks for reading! I hope that this post gave some insight into some of the economic issues set on the current global stage.