Like the rest of us, Wall Street is obsessed with the novel coronavirus. Seemingly every company has some sort of Covid-19 angle, from creating personal protective gear, manufacturing medical equipment, creating or running tests and working on a vaccine. Those that have a successful angle are richly rewarded. That’s where we are lately with Opko Health (NASDAQ:OPK) stock.
Opko, a midsize Miami-based company with a market cap of just over $2 billion, is up more than 130% so far this year. And while shares are still less than $4, the company is now trading at levels unseen since January 2019.
What’s driving OPK stock higher? It’s Covid-19, of course? This company has two ways to play the pandemic.
Opko’s Coronavirus Treatment
Opko is putting its hopes on Rayaldee, which goes by the generic name of calcifediol. Rayaldee capsules are used to treat patients with hyperparathyriodism, stage 3 or stage 4 chronic kidney disease or low vitamin D levels.
In June, the Food and Drug Administration approved Opko’s request for a Phase 2 trial of 166 patients with mild to moderate cases of Covid-19. The patients are taking Rayaldee for four weeks in a randomized double-blind placebo-controlled study to see if it can successfully raise levels of serum total-25 hydroxyvitamin D (25D) levels to reduce the effects of the coronavirus symptoms.
Opko says many of the subjects of the study have advanced-stage kidney disease.
Dr. Charles Bishop, CEO of Opko’s renal division, explained the test:
“Raising serum 25D enables macrophages, a type of white blood cell of the immune system, to secrete potent antiviral proteins that can destroy SARS-CoV-2, the virus that causes COVID-19. It also can suppress the cytokine storm triggered by viral infection.”
Sure, there are a lot of coronavirus trials and potential vaccines out there, including efforts by Johnson & Johnson (NYSE:JNJ), Pfizer (NYSE:PFE) and Moderna (NASDAQ:MRNA). So, there’s no guarantees that OPK stock will benefit from its Phase 2 trial.
The market sentiment in certainly strong, however. Since the June 1 announcement, Opko stock is up 50%.
Opko’s Coronavirus Test
A sure-fire revenue stream for Opko, however, is testing for the coronavirus. Currently the U.S. is conducting 500,000 tests per day and so far has issued more than 32 million tests.
We have a long way to go before this pandemic is over. Experts say the U.S. should be doing 1 million or more tests per day, and that the need for tests will last long after a vaccine is created and mass-produced.
Opko subsidiary BioReference Laboratories is among those performing coronavirus tests. BioReference is the contracted lab in New York City, which was the epicenter of the Covid-19 pandemic for several months, and the city is still offering free testing performed by BioReference at 16 locations.
BioReference also has a contract with New York state, which has been aggressive in testing to flatten the curve of new cases. It recently published a study of testing at New York nursing home and adult care facilities. The testing included more than 350 facilities and included 222,000 Covid-19 tests and 3,500 antibody tests.
Jon Cohen, executive chairman of BioReference, told Politico that the company is also conducting tests in New Jersey and Florida — the latter which is currently seeing its own spike in new cases. He said BioReference and other testers are straining to keep up with the demand for testing.
“We not only hit capacity, but any ability to increase our capacity became limited by the supply side,” he said. “The vendors, the suppliers can’t keep up.”
That doesn’t sound like demand that’s going to go away any time soon. Vendors and suppliers will adapt to the increased need, much as they did for toilet paper and hand sanitizer back in March. You can expect revenues to continue to flow into Opko’s coffers.
OPK Stock at a Glance
Opko reported first-quarter earnings in early May, posting revenue of $211.5 million versus analysts’ expectations of $215.9 million. Earnings came in at an adjusted loss of $0.09 per share, which matched expectations.
I’m expecting better numbers for the second quarter when Opko reports in early August, considering the number of coronavirus tests it has performed and its Phase 2 testing with Rayaldee.
And I’m not the only one. Piper Sandler analyst Edward Tentoff raised his price target on OPK stock from $3 to $4, saying BioReference’s testing should give Opko’s Services division nearly $900 million in revenue this year.
The Bottom Line on OPK Stock
But as a growth stock with potential to provide oversized returns, I like Opko for giving investors two paths to profit from coronavirus research and testing.
OPK stock has a “B” grade in my Portfolio Grader right now, where it carries a buy recommendation.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.