Opko Seen In Poor Health; JPMorgan Downgrades

Opko Health Inc. OPKO reported major fourth-quarter misses in both its top and bottom lines Thursday. The Street didn't react kindly.

The Rating

JPMorgan analysts Eric Joseph and Anupam Rama downgraded Opko to Underweight and removed its prior price target of $7.

The Thesis

The miss was largely driven by declines in the core diagnostics and bioreference laboratories (BRL) business, which missed estimates of $249 million with just $148 million.

Despite management’s guidance for near-term stabilization and sequential growth in the first quarter, Joseph and Rama are wary of expected declines in lab volumes, pricing and reimbursement pressure, and leadership turnover.

“We struggle to see the path back to positive operating margins and BRL cash flow generation in 2018,” the analysts wrote in a Friday note.

They forecast additional share pressure from a lack of clinical updates until 2018 and 2019, a soft Rayaldee launch, and cash overhang. However, the firm may see relief down the line.

“OPKO’s phase 3 hGH-CTP program (partnered with Pfizer) for pediatric growth hormone deficiency does have the potential to generate meaningful revenue longer-term, while its phase 2 OPK88004 SARM provides interesting pipeline optionality,” Joseph and Rama wrote.

Price Action

At time of publication, shares were trading down 6.3 percent at $2.98.

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