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Opko Health Inc Reports Operating Results (10-Q)

May 10, 2010 | About:

Opko Health Inc (NASDAQ:OPK) filed Quarterly Report for the period ended 2010-03-31.

Opko Health Inc has a market cap of $477.61 million; its shares were traded at around $1.87 with and P/S ratio of 36.35. OPK is in the portfolios of Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

Gross margin. Gross margin for the three months ended March 31, 2010, was $2.4 million compared to $0.7 million for the comparable period of 2009. Gross margin for the three months ended March 31, 2010, increased from the 2009 period primarily as a result of the gross margin generated by our pharmaceutical business in Chile.

Selling, general and administrative expense. Selling, general and administrative expense for the three months ended March 31, 2010, was $4.2 million compared to $3.3 million of expense for the comparable period of 2009. The increase in selling, general and administrative expenses primarily reflects the increase in selling expenses related to the pharmaceutical business as a result of our acquisitions of Pharma Genexx and Pharmacos Exakta, partially offset by decreased professional fees. Selling, general and administrative expenses during the first three months of 2010 and 2009, primarily include personnel expenses, including equity-based compensation expense of $1.0 million and $0.7 million, respectively, and professional fees.

months ended March 31, 2010, includes equity-based compensation expense of $0.2 million, compared to the 2009 period which includes a reversal of expense of $0.1 million of equity-based compensation expense related to the termination of several employees.

In connection with our acquisition of Pharma Genexx, we have entered into lines of credit agreements in the aggregate amount of $15.5 million with eight financial institutions in Chile and one in Mexico, of which, $10.8 million is unused. These lines of credit are used primarily as a source of working capital for inventory purchases.

Allowance for doubtful accounts and revenue recognition. Generally, we recognize revenue from product sales when goods are shipped and title and risk of loss transfer to our customers. Certain of our products are sold directly to end-users and require that we deliver, install and train the staff at the end-users facility. As a result, we do not recognize revenue until the product is delivered, installed and training has occurred. Return policies in certain international markets for our medical device products provide for stringent guidelines in accordance with the terms of contractual agreements with customers. Our estimates for sales returns are based upon the historical patterns of products returned matched against the sales from which they originated, and managements evaluation of specific factors that may increase the risk of product returns. We analyze accounts receivable and historical bad debt levels, customer credit worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts using the specific identification method. Our reported net loss is directly affected by managements estimate of the collectability of accounts receivable. The allowance for doubtful accounts recognized in our consolidated balance sheets at March 31, 2010 and December 31, 2009 was $0.4 million and $0.4 million, respectively.

On February 17, 2010, the Company entered into an agreement to acquire Pharmacos Exakta, S.A. de C.V., a privately-owned Mexican company (Pharmacos Exakta). Pursuant to a purchase agreement (the Purchase Agreement) by and among Pharmacos Exakta, Ignacio Levy García and José de Jesús Levy García (each a Seller and collectively the Sellers), Inmobiliaria Chapalita, S.A. de C.V., an affiliate of Sellers (Inmobiliaria), the Company, OPKO Health Mexicana S. de R.L. de C.V. (Buyer), and OPKO Manufacturing Facilities S. de R.L. de C.V. (OMF), Buyer and OMF acquired all of the outstanding stock of Pharmacos Exakta and real property owned by Inmobiliaria for a total aggregate purchase price of $3.6 million, of which an aggregate of $1.6 million was paid in cash and $2.0 million was paid in shares of OPKO Common Stock, par value $.01. A total of 1,372,428 shares of OPKO Common Stock (the Shares) were issued in the transaction which were valued at $2.0 million due to trading restrictions. The Shares were issued in reliance upon the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended. The Shares are restricted securities as that term is defined by Rule 144 under the Act and no registration rights have been granted. The Shares delivered at closing of the transaction are also subject to a two year contractual lockup.

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