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Opko Executive Investment Will Buy 12 Months; 2008 Losses Decline

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Opko Health expects to be able to fund its operations into early 2010 after an investment group controlled by the company's chairman and CEO agreed to by $20 million worth of the ophthalmic drug and device shop's stock, according to a US Securities and Exchange Commission filing published this week.

Also in the filing, Opko disclosed its financial results for 2008 and provided an update on a legal dispute in which it has been charged with illegally interfering with the business of a rival.

Like a number of other smaller players in the RNAi space, Opko had been facing a cash shortage that has cast doubts on the firm's ability to advance its research and development efforts (see RNAi News, 11/20/2008). But unlike other firms, the company is led by billionaire Phillip Frost, who founded generic drug firm Ivax, which was later sold to Teva Pharmaceutical for more than $7 billion.

Earlier this month, Opko disclosed in an SEC filing that one of Frost's investment vehicles in February agreed to buy 20 million shares of the company for $20 million, $3 million of which has already been provided (see RNAi News, 3/12/2009).

At the time it was not known how long the cash infusion would last Opko. But in this week's SEC filing, the company said that with the $20 million, it now expects to have "the cash and cash equivalents … sufficient to meet our anticipated cash requirements for operations and debt service for the next 12 months."

Opko cautioned, however, that this estimate is based on "assumptions that may prove to be wrong or subject to change," and that the company "will need to raise substantial additional capital to engage in and continue … clinical and preclinical development and commercialization activities."

At the same time, "the current disruptions in the US and global financial markets may adversely impact … our ability to raise money in the capital markets," Opko said in the filing. And as it has done before, Opko may turn to its chief executive for a bailout if the financial markets remain soured.

Thus far, Opko has been primarily financed by the Frost Group, another investment entity controlled by Frost. Last August, the Frost Group committed $15 million to Opko in exchange for about 13.5 million shares of the company. About four months later, the investment group paid $20 million for about 10.9 million shares of Opko.

But it is not yet clear whether Frost will be permitted to again increase his stake in Opko. Separately this week, the company said that he had filed a notification with the SEC that the deal for the 20 million Opko shares and "possible future [stock] purchases" are expected to increase his ownership percentage in the firm to more than 50 percent.

"As a result, he is requesting clearance to allow such purchases," Opko said. Such a request is usually followed by a waiting period of up to 30 days during which regulators can assess whether the transaction violates US antitrust laws.

The Financials

For the 12-month period ended Dec. 31, Opko said revenues swelled to $9.4 million from $800,000 the year before.

According to Opko, revenues in both periods were entirely derived from sales of its OCT SLO ocular imaging system, which the company acquired when it purchased instrumentation firm Ophthalmic Technologies in late 2007. The system is currently only in select international markets outside the US, although it is slated for commercialization in the US later this year.

Research and development spending in 2008 almost doubled to $21.6 million, an increase Opko attributed to the development of bevasiranib, its siRNA-based treatment for wet age-related macular degeneration.

Opko announced last week that it had halted a phase III study of bevasiranib early after preliminary data indicated that the trial was unlikely to meet its primary endpoint of vision-loss prevention.

Opko said this week that it intends to "conduct a complete evaluation of the clinical data in an effort to determine the factors causing this outcome," adding that its "willingness to continue to develop bevasiranib will depend on [its] understanding of the trial data and the efficacy of the underlying technology."

As a result of its decision to end the phase III study, Opko recorded in 2008 a $400,000 charge related to "prepaid assets that will not be utilized as originally estimated." In addition, the company expects it will incur a $2.4 million charge in the first quarter of 2009, which includes approximately $1.4 million of expenses related to the shutdown of the trial, which includes transitioning AMD patients receiving bevasiranib to the standard-of-care treatment.

Selling, general, and administrative costs for the year edged up to $14.8 million from $12.5 million, in part reflecting the cost of doing business as a publicly traded company. Opko was created in early 2007 through a three-way transaction than included the acquisition of Acuity Pharmaceuticals (see RNAi News, 3/29/2007), and only operated as a public company for nine months that year.

For 2008, Opko's net loss was roughly $40 million, or $0.21 per share, versus a year-ago loss of $268.6 million, or $2.09 per share. The losses for 2007 in part reflect costs related to the Acuity acquisition.

As of Dec. 31, 2008, Opko had cash and cash equivalents totaling approximately $6.7 million.

The Litigation

In May 2007, ophthalmic technology firm Ophthalmic Imaging Systems sued former Opko executive Steven Verdooner for allegedly breaching his fiduciary duty to the company by negotiating an employment deal with Opko.

The suit also alleges that in the course of those negotiations Verdooner disclosed confidential company information regarding OIS’ one-time plan to acquire OTI, which Opko eventually bought itself.

As first reported by RNAi News, that suit was later amended about a year later to include allegations that Opko and the Frost Group conspired with Verdooner to interfere with OSI's business activities, namely its efforts to acquire OTI (see RNAi News, 5/22/2008).

In this week's SEC filing, Opko said that while OIS said it was seeking damages "in excess of $7 million," during the discovery phase of the litigation OIS estimated that actual damages could be either $13 million or $28.6 million. Opko noted that it has agreed to indemnify both Verdooner and the Frost Group in connection with the lawsuit.

"The company believes this [legal] action is without merit and is vigorously defending" itself, Opko said in the filing. The "trial is currently scheduled to commence in April … [and] it is too early to assess the probability of a favorable or unfavorable outcome."

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