OPKO Health, Inc.

OPK Details

OPKO Health, Inc. (NASDAQ: OPK) operates as a multinational biopharmaceutical and diagnostics company. The company operates the diagnostics business via BioReference Laboratories, Inc. (BRL), one of the US’ largest full-service laboratories with a core genetic testing business, and the pharmaceutical business through Rayaldee, a U.S. Food and Drug Administration (FDA) approved treatment for secondary hyperparathyroidism (SHPT) in adults. OPK’s leading product in development (in partnership with Pfizer, Inc.) is Somatrogon (hGH-CTP), a once-weekly human growth hormone injection that completed a successful phase 3 study in August 2019. As of May 18, 2021, the company’s market capitalization stood at USD 2.42 billion.

Product Pipeline (Source: Corporate Presentation, January 2021)

BRL to Continue as COVID-19 Test Provider for MLS: On April 27, 2021, Major League Soccer (MLS) renewed its contract with BRL as its COVID-19 testing provider for the second year. The company will provide laboratory-based PCR and rapid COVID-19 testing to players, match officials, and League staff for 13 Club teams.

Expansion of COVID-19 School Testing Program: On March 26, 2021, BRL announced the expansion of its COVID-19 school testing program to support the return of in-person classroom instruction across the U.S. The Biden Administration stated, on March 17, 2021, that it expects the schools will be 100% open for in-person learning in the fall.

Robust Q1FY21 Results: The company reported a massive increase of 157.8% increase in net revenue to USD 545.2 million in Q1FY21 (ending March 31, 2021) as compared to USD 211.5 million in Q1FY20. Revenue from diagnostics witnessed a growth of 196.8% to USD 507.0 million in Q1FY21 vs USD 170.8 million in Q1FY20, primarily due to COVID-19 testing. The company reported a net income of USD 31.1 million in Q1FY21 as compared to a net loss of USD 59.1 million in Q1FY20.

Key Risks: Many of the company’s products are in early Research and Development (R&D) stages, and are prone to the risks of failure inherent in drug, diagnostic, and medical device product development. The products further run the risk of being ineffective or unreliable or failing to receive regulatory approval. OPK relies on licensing agreements with Vifor Fresenius Medical Renal Care Pharma Ltd. (VFMCRP) and Japan Tobacco (JT) for the international development and marketing of Rayaldee, and failure to maintain these agreements could prevent the company from commercializing Rayaldee worldwide.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

OPK Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Stock Recommendation: OPK has declined by 36.2% in the past three months and is currently leaning towards the lower end of the 52-week range of USD 2.08 to USD 6.47. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 4.22. Considering the significant correction in the stock price in the past three months, healthy product pipeline, continued demand for COVID-19 testing, and strong financial performance, we recommend a “Buy” rating on the stock at the closing price of USD 3.61 as of May 18, 2021.