Opko Health (OPK: $6.95, down 6 cents today) recently reported first quarter financial results with a loss of $31 million versus the Street estimate of -$22 million – ouch, up from -$12 million last year. Revenues were solid at $296 million up from $290 million.
The Rayaldee launch is making disappointing progress relative to our expectations. Opko is working on gaining more access for Rayaldee as it has the coverage of just 60% of U.S. eligible patients. Management anticipates that expanding insurance coverage along with more active marketing, including the anticipated release of updated guidance from the Kidney Disease Improving Global Outcomes organization, could likely increase access going forward. We had expected to see more progress by now and the hiccups raise our concerns.
Sentiment is souring and turning to be more focused on the risks in front of the company. As a reminder, we discuss each of the key risks below.
One of the key risks for Opko is failure of clinical studies that could potentially result in sunk costs in both capital and time lost. Opko currently has several mid- to late stage clinical trials underway. Failures of these studies, especially the Phase III pivotal trials, could have significant negative impact on the stock. More specifically, clinical study success of MOD-4023, a human growth hormone, is very important given it accounts for substantial valuation of the stock. We are just not seeing the company express a confident tone to comfort our concerns about this risk.
Although OPK’s current pipeline products have exhibited the potential to generate positive clinical outcomes from current and future trials, it remains too early to project whether any of these products would be approved by regulatory agencies. Even if the products were to enter the market, sales could be below projections due to various reasons. A revenue outlook below expectations could also negatively affect the stock. It is hard to ignore these concerns as we see slow progress in the company quarterly results.
BMR Take: The stock has been a disappointment for us at The Bull Market Report. While there is a lot of potential, the underlying fundamentals suggest the company is having a hard time executing. We see much risk in riding out the turbulence. We prefer to allocate capital to our other great ideas that are working, like Apple, Facebook, and Shopify. But something makes us want to keep Opko around for a little while longer. We are going to give it three more months.
The CEO, Philip Frost, has millions of shares and continues to buy more stock virtually every day – we are not exaggerating here. With the stock down below $7, he may increase his buying and others may do as well. So we might just see the stock stabilize here and mover higher later this year. The market cap is $3.9 billion for a company that has a revenue stream of $1.2 billion, and a lot of potential. Not overly expensive.
The stock is down from $10 where we added it in September. We've stuck with it too long, as we had Sell Prices of $9 and lowered it to $8, but still didn’t remove it, even at the $7 level yesterday. We now lower it to $6. Some might say we should be more diligent in following our own rules. Others might say we are being patient as we believe in the company and its continual announcements of future success. We do believe in giving a company a chance to be successful, like Mazor that is up over 150% since we added it last summer. So we will wait as patient investors.