by Ethan Roberts | December 17, 2013 10:45 am
What in the world is going on at Opko Health (OPK)?
For those who don’t know, Opko Health is a biotech company with multiple pharmaceutical product lines in its pipeline. And OPK stock was sailing for most of 2013, as biotechs and other health care stocks were all booming thanks to recent drug approvals, mergers within the industry, and a feeling that Obamacare would increase revenues from millions of newly insured consumers. OPK stock climbed from $5 at the start of the year to a closing high of $11.63 on Dec. 9.
But suddenly the bottom dropped out. As the accompanying OPK stock chart shows, Opko Health slid 26% lower in just a few days, currently going for under $9.
While this is not uncommon for a speculative biotech stock, it was not a poor earnings report, FDA rejection, nor an analyst downgrade that caused the swoon. Instead, OPK stock got hammered by a brutally negative article entitled “Opko Health: The Placebo Effect.” It was published by Lakewood Capital Management — a hedge fund that has publicly acknowledged a very large short position on shares of OPK stock.
The Lakewood article alleged that Opko Health was “grossly overvalued,” and challenged the worth and potential of several of its pipeline products. It suggested that the company might never make a profit and that OPK stock is worth no more than a quarter of the current price. The article even attacked the most promising phase 3 drug in the Opko Health pipeline — Rayaldy, which treats stage 3 and 4 kidney disease.
Immediately after the 45-page report was published, investors fled OPK stock in droves. But Dr. Philip Frost — the billionaire who owns Opko Health — didn’t just defend his company a few days later. He also supported his position by purchasing another 1.2 million shares at prices ranging from $9.44 to $10.90 over a two-day period … and that’s on top of the millions of shares of OPK stock he already bought on the open market throughout 2013,.
So what should investors in OPK stock do now — sell, hold or buy more shares at depleted prices?
The answer to that question depends on your tolerance for risk and your time horizon. OPK stock has always been extremely volatile, and will most likely continue to be. Aggressive swing and option traders could find a great deal of value in OPK stock at present levels, especially if Dr. Frost continues his insider purchases.
Dr Frost said in a recent interview that he continues to buy OPK stock because he believes the product line will eventually create tremendous appreciation. Plus, Frost has never sold any of the shares of Opko Health he purchased.
And it’s promising that Opko is a well-diversified company, whose research includes everything from developing molecular level diagnostic tests to identify biological markers for treating Alzheimer’s disease and several types of cancers. In addition to U.S. sales, many of products are sold overseas in Israel, Mexico and Chile … to name a few.
Plus, an FDA decision is due soon on the company’s Phase 3 Rolapitant drug, which prevents chemotherapy induced nausea and vomiting. Opko says that Rolapitant, once fully approved, has the potential to gross up to $1.25 billion.
Despite those tailwinds, investors should keep in mind that OPK is a high-risk stock right now for several reasons, including:
The bottom line is that OPK stock is mainly for investors who are more risk tolerant or have a longer term view.
The company’s endeavors and funding sources are quite well diversified, so should any one of its products be delayed, it still has plenty of other successful business ventures to fall back upon. And of course there is always that ongoing insider buying to provide fodder for momentum players.
As of this writing, Ethan Roberts did not own a position in any of the aforementioned securities.
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