Opko Health: "Our Most Speculative Buy"

09/12/2017 2:56 am EST


Todd Shaver

Founder and Editor-in-Chief, BullMarket.com

Opko Health (OPK) is a biotech company in an industry that is known for companies with years and years of little or no progress (and revenues) and then a big announcement of great success, asserts Todd Shaver, editor of BullMarket.com.

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Luckily, Opko isn’t in the camp of no revenues; in fact, revenues are over $1 billion. The company recently reported earnings for 2Q17; total revenues of $314 million were down 12% year over year from $357 million.

Revenues included a $10 million payment associated with the commercial launch of Varuby—for prevention of nausea associated with chemotherapy—in Europe in comparison to the $50 million payment related to a license for the kidney drug Rayaldee in the same quarter in 2016.

Research and development expenses totaled $33 million, up 4%, while selling, general and administrative expenses amounted to $128 million, up 9% year over year.

Consequently, loss from operations came in at $4 million, highlighting a significant decline from an operating income of $55 million in the prior-year quarter.

The decline can be attributed to a rise in operating expenses owing to the company’s significant investments associated with the commercial launch of Rayaldee along with consistent investments in the pharmaceutical pipeline. The company has $130 million in cash, unchanged from the quarter before.

Released in 2014, the 4Kscore Test is the only blood test that can accurately identify a patient’s risk for aggressive prostate cancer, Opko claims. As calls to reduce health care costs across the United States grow louder, 4KScore a cost-effective alternative to biopsies, chairman and CEO Phillip Frost said.

About 30 million tests are done each year to measure men’s prostate-specific antigens, or PSA. Of those, 4 million identify elevated PSA levels and typically would require biopsies.

“If you do the test after the elevated PSAs, you can avoid 50% of all biopsies,” Frost said. “This is the type of thing that if you wanted to be able to cut healthcare costs in this country, this has to be the easiest thing in the world to do.”

On why he continues to buy thousands of OPKO shares, Frost explains, “I always believe in investing in things that I know about rather than things I don’t.”

Opko Health is a relatively small biotech firm with great potential. Many times “great potential” results in “no results.” This $3.4 billion market cap company is poised for success, but we caution that is is the most speculative stock in our six model portfolios.

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