OPK - No Cure For OPKO Health Inc.

Summary

• OPKO Health Inc. shares get a strong sell rating from us for its own failing financial health and collapsing price.
• The company benefited from COVID-19 with strong revenue in 2020 and 2021 for its BioReference testing segment but it did not last.
• The optimism of its octogenarian leader is refreshing but not reassuring despite him spending hundreds of millions of his own money apparently keeping the company afloat.

We do not see a cure for OPKO Health, Inc. ( OPK ) shares as the price tumbles. We rate the shares a strong sell.

The company develops original drugs, and imports and sells pharmaceuticals around the world. Its BioReference Laboratories diagnostics division is a major testing operation for COVID-19, oncology, urology, women's health, maternal-fetal medicine, and genetics.

The stock is not covered by many analysts but they tend to be positive.

Just last month Zacks Equity Research opened an article suggesting "OPK is well-poised for growth in the coming quarters, courtesy of its potential in RAYALDEE." But the drug faces stiff competition and sales were off in Q3 '22.

We are following the stock for nearly a decade with faith in the company's legendary leader and biggest stockholder, Dr. Phillip Frost . The stock, like the picture of Dorian Gray, has become uglier with nearly every quarterly earnings report's passing. We think the Seeking Alpha Factor Grades overstate potentially dire conditions:

Portrait of Dorian Gray

We once owned the stock and got burned. That didn't deter us. Our March 19, 2022 article suggested OPKO Health has upside potential. Seeking Alpha's Quant Rating at the time was a buy. The rating was held throughout the first quarter of '22. It turned to ' Hold' and then ' Sell '. Near year's end, the Quant Rating is a ' Strong Sell' . The 2020-2021 motivations for good revenue and earnings faded.

Not a Pretty Picture

The shares fell 5%. Top and bottom lines missed estimates in Q3 '22. EPS missed by $0.03. Revenue in Q3 was down 53.4% Y/Y and missed estimates by almost $4M. The -$0.11 EPS last year will be the same vicinity for Q4 '22.

The share price slipped from $5.15 to $3.67 in the first quarter of '22. Nine months later the shares sell for $1.10. The pattern is clear: the stock is down 76% over 10 years, down another 76% over the past year, and -76.88% YTD. Concomitantly, biotech industry stocks have done better.

iShares Biotechnology ETF (NASDAQ: IBB ), with $10B in assets, is +~23% over five years. The IBB share price is down 13.35% YTD beating the S&P 500 ( SPY ) which is -19.84% YTD. IBB has a strong buy Quant Rating. It pays a small dividend. OPKO never paid a dividend. The next earnings report is expected on February 23, 2023.

Hedge funds sold almost 2M shares in the last quarter. The number of funds holding OPK shares slipped from 19 to 16 by the end of September. Massive stock purchases by Dr. Frost, a few close associates, and a trust he controls seem to keep the company afloat.

OPKO's Artist

Dr. Frost built his fortune and reputation as a self-made turnaround entrepreneur and scientist. According to Forbes , Dr. Frost took over Key Pharmaceuticals in 1972, fixed its asthma drug, and sold the company for +$800M. He sold Ivax drug maker for $7.6B. By 2015, his personal wealth topped an estimated $4.5B.

He is heavily invested in OPKO through Frost Gamma Investments Trust. Dr. Frost is the trustee. His slipping fortune, now valued at $2.2B perhaps reflects the fall in OPKO's share price. June through the end of November '22, Dr. Frost is reported to have bought 6.06M shares including 500K last month. He and a few associates own 46% of the company. Dr. Frost reportedly invested over $600M in a company with an $880.8M market cap.

Dr. Frost invests these mega-millions in OPKO because he believes in their products and potential commercialization. Annual revenue has gone up but it has not been a steady climb.

Dr. Frost told shareholders in 2007 he is enthusiastic about the drugs treating obesity, type 2 diabetes, and prostate hyperplasia, and the FDA approved (in 2016) drug Rayaldee. OPKO was developing a testing program.

At this time, OPKO Health, Inc. does diagnostics and sells pharmaceuticals in the United States, Ireland, Chile, Spain, Israel, Mexico, and elsewhere. The company's BioReference Laboratories offers esoteric testing, molecular diagnostics, anatomical pathology, genetics, women's health, and correctional healthcare. It has a novel diagnostic instrument system to provide blood test results in the point-of-care setting; it also offers 4Kscore prostate cancer testing services.

BioReference's COVID testing greatly increased revenue but panned as testing mandates were set aside. In 2021, OPKO introduced Scarlet Health in-home testing; this is a booming field, as we described the industry in another article.

The company has trials going for an orally administered once-weekly administered peptide for the treatment of type 2 diabetes and associated obesity. NGENLA is a once-weekly human growth hormone injection that completed Phase III clinical trial in partnership with Pfizer, Inc.

The company develops, manufactures, and sells pharmaceutical, nutraceutical, veterinary, and ophthalmic products; it commercializes food supplements and over-the-counter generic products. OPKO imports and resells cardiovascular pharmaceuticals, vaccines, antibiotics, gastrointestinal products, and hormones. Pharma revenue dipped 12% due to volatile foreign exchange rates this past year and headwinds in Chile and Europe. Rayaldee sales were down in Q3.

OPKO is a Pill

We cannot forecast a healthy future for OPKO Health, Inc. Short interest is approaching a high of 10% as the stock dives toward a dollar. The force majeure is 86 years old Dr. Frost. He is spending a personal fortune to help float the company. The November 8, '22 shareholder presentation and earnings statement were disconsolate, in our opinion.

• Between July and September '22, management cut its workforce from 4,300 to 3,300. Its website claims the company employs over 5,500 in 9 countries.
• The company wants to cut $140M per year in expenses.
• R&D and marketing might suffer the most.
• New partnerships and relationship building with other biotech and pharma firms that management boasts to market and sell products sound time and resource-consuming.

In the Q3 presentation to shareholders, The President and Vice-Chairman warned shareholders that

It is imperative that we also align our infrastructure and related costs, with current testing volumes for COVID being reduced to endemic levels, in addition to inflation pressures…while pursuing efficiencies in virtually every area of our business, including rationalization of our testing platforms and looking at opportunities to use lab automation and machine learning where possible.

2020 and 2021 were better years for OPKO shares; the share price rose to over $5 each as BioReference revenue flourished . Scarlet®, the division's mobile patient testing centers serviced millions for the novel COVID-19, influenza A & B on cruise ships, in the National Football League, at 17 pop-up testing facilities, and more. Then it was over. The operating loss for the diagnostic segment was $49.5M in Q3.

We do not see any scintillating news that is going to drive up the share price. We cannot see any potential for an investor to do anything but take a tax write-down with a strong sell rating. We admire Dr. Frost's business acumen and scientific contributions. He also puts his money into his passions. Most of all we admire the optimism of this octogenarian.

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