Now That the Versartis IPO Dust is Settling... (OPK, RHHBY, VSAR)

Look out Roche Holding Ltd. (OTCMKTS:RHHBY), and Opko Health Inc. (NYSE:OPK) - you're on notice too. There's a new player in the human growth hormone arena, and it may have built the proverbial better mousetrap. Versartis Inc. (NASDAQ:VSAR) only went public in late March, but with the dust from that IPO settling, it's already becoming clear that VSAR - admittedly a one-trick pony - could pose a real threat to OPK and RHHBY... at least on the human growth hormone front.

Versartis is developing VRS-317, a potential differentiated, long-acting growth hormone for growth hormone deficiency. It's not a huge market, but it's big enough that some of the pharma industry's bigger names want in. Roche Holding subsidiary Genentech, for instance, markets Nutropin for patients that don't make enough of their own human growth hormone. Nutropin was cloned from real HGH, and though the drug is primarily targeted at HIV/AIDS patients, it can be used for some off-label indications. Opko Health also got into the human growth game in August of last year via the acquisition of PROLOR Biotech, which was working on its own long-lasting HGH therapy at the time. It was a phase 2 drug at the time, though Phase 3 (for adults) was/is expected to begin in the second quarter of this year. The Opko/PROLOR version should have more versatility than the one that Roche/Genentech has under its umbrella. Yet, Versartis may have an HGH solution that even trumps Roche Holding's.

VRS-317 is currently in Phase 1 trails for adults, and is in the midst of Phase 1/2 trails for children. It's shown strong promise so far, however, and not just because of its efficacy. Rather, VRS-317 is attractive because it's practical. Whereas most of the HGH treatments like those manufactured by Roche Holding subsidiary Genentech or the one that will likely be manufactured - if approved - by Opko Health (via PROLOR) are once-per-day injections, Versartis is developing VRS-317 as a once-per-month drug, making it much more likely patients will be able to stick with a treatment regimen and maximize the beneficial results.

As was noted before, the human growth hormone market isn't enormous, but is respectable. At stake is what's expected to be $4.7 billion worth of revenue by 2018. And, while it may have been premature to do so, analysts have tinkered with initial revenue projections ranging from $30 million to $120 million (annually) to start, with more in the pipeline as the drug - if the drug - proliferates following its likely 2016 approval. While they're just guesses, even the lower end of that inaugural revenue possibility isn't too bad for a $660 million corporation that could then leverage its portfolio and know-how to develop other profit-centers.

While it's hardly risk-free, VSAR could make for an interesting ground-floor opportunity in a space that names like Opko Health and Roche Holding have already defined and blazed a trail to... a space where Versartis may well have a better product.

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