When a stock that’s relatively stable suddenly sees an 8.3% one-day spike – and on volume that’s over five times higher than its regular daily average – it’s time to pay attention.
That’s precisely what happened to biopharmaceutical and diagnostics company, Opko Health (OPK), on Monday.
It’s been an okay year for the Miami-based firm, with shares up over 8% year to date.
But an 8.3% one-day spike is an anomaly. So is the sudden rise warranted?
Thanks to a recent deal with Pfizer (PFE), it might be…
Opko’s Rough Year
Let’s take a look at Opko’s recent results…
Revenue: In the third quarter, the company reported $19.8 million in total revenue – a decline of 3.9% over Q3 2013. Not only that, the 2014 year-to-date numbers showed even worse results, with revenue slumping from $75.8 million to $65.6 million – a 13.4% drop.
Net Loss: While the company managed to narrow its quarterly net loss from $60 million a year ago to $48.7 million, it was still a wider loss than anticipated. And again, year-to-date results tell a fuller story. Net loss for the nine months was $118.7 million, versus the $98 million over the first nine months of 2013.
Profit Margin: It’s another case of one step forward, two steps back, here, as well. Opko reported a strong gross profit margin of 46.7%, but its net profit margin of -246.1% is significantly below the industry average.
Cash Flow: Opko’s net operating cash flow suffered a huge 83.7% decline to a loss of $21 million.
To summarize those results, it’s a mixed bag… at best.
So Opko’s sudden price rise seems inexplicable, right?
Well, not entirely…
Pfizer-Fueled Gains on the Horizon
On the plus side, Opko boasts very low debt and a current ratio of 2.12, which shows that the company has the ability to meet its short-term liquidity needs.
But here’s a bigger reason why investors should remain bullish…
Opko and Pfizer recently announced that they’ve entered into a global agreement for the development and commercialization of Opko’s long-acting hGH-CTP therapy for the treatment of growth hormone deficiency. The treatment primarily targets growth failure in children who do not show catch-up growth by two years of age.
According to the agreement, Opko will receive an upfront payment of $295 million and is eligible to receive an additional $275 million upon the achievement of specific milestones.
In return, Pfizer will receive exclusive licensing rights for the commercialization of hGH-CTP worldwide.
The benefit for Opko shareholders here is obvious: By luring Pfizer’s expertise in realizing the vast potential for hGH-CTP, the alliance could transform Opko’s fortunes and ignite the shares.
Especially since the market value for the therapy is over $3 billion.
You see, hGH-CTP has the potential to be the best-in-class, long-acting growth hormone on the market, and should be immediately accretive to Opko’s bottom line.
Additionally, the Pfizer partnership will reduce the regulatory burden on Opko, as the companies will share the financial responsibility for further global trials.
The company that produces human growth hormones could produce significant wealth growth for shareholders, too. And Opko just put itself in a very strong position.