Why OPKO Health, Inc. Stock Rocketed Higher in May

What happened

Shares of the diversified healthcare company Opko Health, Inc. (NASDAQ: OPK) gained a healthy 27.6% last month, according to S&P Global Market Intelligence. What sparked this double-digit rally?

Opko’s shares surged higher last month in response to a strong first-quarter earnings report that topped Wall Street’s revenue forecast by a stately $18 million.

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So what

Over the past few years, Opko’s shares have struggled mightily due to the poor commercial launches of the company’s prostate cancer test known as 4Kscore, as well as the secondary hyperparathyroidism drug Rayaldee. In the first quarter of this year, however, Opko reported that Rayaldee’s prescriptions rose by a healthy 730% year over year, giving investors hope that this key drug may finally start to become a major growth driver moving forward.

Now what

Unfortunately, Opko ended last month on a sour note. The company reported that the Medicare Administrative Contractor, Novitas Solutions, released a draft policy that would deny coverage for Opko’s 4Kscore test. While Opko does have a chance to offer a rebuttal to this initial guidance early next month, this forthcoming coverage decision could become a major overhang for the company. Despite 4kscore’s anemic sales so far, Opko has been counting on it to eventually transform into a blockbuster product.

Compounding matters, Opko clearly needs to raise additional capital soon based on its last stated cash balance of less than $100 million and a current quarterly burn rate that presently exceeds a whopping $43 million. When looked at together, Opko’s weak financial position and 4Kscore’s shaky reimbursement status arguably make this stock far too risky to own at this point.

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George Budwell has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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