Opko Health Inc (OPK)

[WiseFool]

Lowenthal Capital Partners: ‘Does heavy insider trading in Opko signal an impending breakout?’

Healthcare Insider Roundup: Opko Health And More

Summary

Top news on insider activity in healthcare.

What are today’s hottest insider stocks?

Does heavy insider trading in Opko signal an impending breakout?

To put it simply, my investment strategy focuses on tracking insider and hedge fund trading. Before committing to an investment, I research whether or not key financial actors have put some skin in the game. So to speak, I ask, “is their money where their mouth is?”

In conjunction, I assess the timing of major investments in relation to important company catalysts. I believe that well-timed buys from key financial players can indicate optimism toward a products’ and/or the company’s outlook; on the flip side, I believe that well-timed sells from key financial players can indicate pessimism toward a product’s and/or the company’s outlook.

This is the working assumption that has guided much of my research over the last few months. Generally, I piggyback on informative insider purchases and sales in healthcare, as it has proven to produce sizable returns as compared to more conventional strategies that I have employed. I hope you find the contents of this Healthcare Insider Roundup as useful as I do.

Focus Ticker: OPK

In my three healthcare Roundups, I noted as postscript that Opko Health (NYSE:OPK) was one of a number of particularly interesting long opportunities to watch in the coming weeks. After updating that list on several occasions, accounting for daily changes and so forth, Opko Health is one of the few still on that list.

From the outset, I admit that I have been watching and covering Opko stock for some time now. Most recently, I published an article on Seeking Alpha titled, “Poor Earnings, A Questionable Acquisition, A Disastrous August, But I’m Still Betting on Opko,” whose bullish thesis is self-evident. In the article, I sought to explain why Opko stock has plummeted since June 2015, why many analysts believed that share price would level out around 10$/share, and why a rebound was imminent. Now I’ve found the perfect opportunity to expand on that analysis in my Healthcare Insider Roundup. Specifically, I follow up by covering recent insider events, and finally, and by exploring potential catalysts that could drive share price in the near future.

For those who are not familiar with the company, Opko Health is a mid-cap ($6 billion) biopharmaceutical company focused on point-of-care diagnostics, novel molecular diagnostics, as well as pharmaceutical and vaccine products. Following the announced $1.47 billion acquisition of Bio-Reference Laboratories (NASDAQ:BRLI) last month, the Opko stock has suffered dramatically. The stock plummeted from 52-week highs of around $19/share to nearly $10.00/share in August. While the acquisition of Bio-Reference provides Opko with a number of valuable opportunities, the market consensus was that the company overpaid. As a result of this, as well as a worse-than-expected Q2 earnings report, Opko stock has undergone a major sell-off.

Criterion #1 – Insider Buying

Despite the rapid decline in the share price, or perhaps, because of the rapid decline in the share price, corporate insiders have made large purchases of cheap company stock. Opko CEO, Dr. Philip Frost, has led this recent spending spree. Over the past 18 days alone, Frost has purchased over $6.8 million worth of stock in the company at near-$10/share mark.

Here, I turn to TipRanks, a service which tracks and ranks corporate insiders, analysts and investors based on their purchases and buy/sell recommendations. Frost, who was long-time Chairman of Teva (NYSE:TEVA), the largest generic manufacturer in the world, is currently ranked 1 out of all 34,001 corporate insiders tracked by TipRanks, having achieved a 41.4% ROI for a 77% success rate on all investments since 2009.

Simply put, this an incredibly promising sign for Opko investors. Frost, with his incredible track record, continues to funnel investments into the company, despite the declining earnings per share. This has generated positive sentiment for the long-term outlook of Opko, but it is also already turning heads in the financial industry. Frost is an incredibly well-respected investor, and hedge funds have responded well to his optimism. Despite declining share price, hedge funds have actually increased their holdings 331,600 shares in the last quarter. Most recently, Paul Tudor Jones at Tudor Investment Corp upped his position $2.53 million; David Costen Haley at HBK Investments initiated a new position worth $445,040; and Joel Greenblatt at Gotham Asset Management initiated a new position worth $453,090. These are the last three major transactions – all buys.

Although I do not trust any actor alone, there is a tidal wave of investment coming from insiders, who have bought shares worth $32.6 million in the last 3 months, as well as hedge funds. As a result, analysts are beginning to update their projections for the share price. The vast majority are now leaning bull on Opko, including Brady Hawke, Chris Sester, Alexis Barley, and Kurtis Sibley.

Criterion #2 – Catalysts

Much has occurred of late for Opko. In my last article on Opko, I focused on the acquisition of Bio-Reference and its implications for the commercialization for the 4Kscore Test. I argued, and maintain, that the acquisition will have incredible long-term benefit for Opko. Here, however, I want to focus on a more recent which, I believe, is yet to be reflected in the share price: the recent approval of Varubi (rolapitant).

Rolapitant is used to prevent delayed-phase chemotherapy-induced nausea and vomiting. Opko has a license agreement for Rolapitant with Tesaro (NASDAQ:TSRO), (another Healthcare Roundup company on my watch list), which entitles Opko to up to $121 million in upfront and milestone payments, double-digit tiered royalties on sales, an undisclosed share of future profits in Japan, and an option to market Rolapitant in Latin America. Opko has established an equity position in Tesaro, so it will benefit greatly from the Rolapitant approval.

Unfortunately, the approval of Rolapitant has not catalyzed a rebound in the share price, but it is still very possible that it has stabilized the situation – that, or investors are yet to fully appreciate the opportunity that the approval has presented Opko with. Much is still to be seen.

Another positive development (albeit, in no way a game changer) was Opko’s September 9 announcement of a global license agreement with the Scripps Research Institute for the development and commercialization of Lsp inhibitors developed and discovered using technology funded and licensed by Opko from Scripps. The parties aim to develop a novel antimicrobial agent through their expanded collaboration. Opko agreed to fund work from Dr. Dennis Wolan at the Institute in order to move rapidly into clinical trials. Obviously, what comes from this collaboration is yet to be seen, but regardless, the expanded efforts seem promising. Stay tuned.

My Takeaway

Although Opko Health has received major insider and hedge fund investment over the last few weeks, public sentiment is yet to turn. Recent developments that might have catalyzed share price appreciation in the past are currently being met with skepticism. As a result, the share price continues to plateau, or decline very mildly. Based on the continued investment from key financial players, and in light of the recent approval of rolapitant, it seems like the bleeding will soon stop. At least this is the notion of the vast majority of analysts who have upgraded their position on Opko. Again, bullish sentiment seems to dominate the conversation.

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