Oppenheimer Cautious on Opko Health Inc. (OPK) Following Non-Coverage Decision from Palmetto

Opko Health Inc. (NASDAQ:OPK) shares tumbled 5% after the Palmetto GBA Medicare Administrative Contractor (MAC) issued a final non-coverage decision for 4Kscore, calling OPK’s study “significantly flawed” and ultimately deeming 4Kscore testing “not reasonable and necessary” as a result of “significant issues with assay validation and absence of clinical utility.”  Now, the biotech firm awaits a final coverage decision by Novitas Solutions, another MAC, with a decision anticipated by February 2017.

In reaction, Oppenheimer analyst Marcus Y. Ho reiterates a Perform rating on shares of OPK without listing a price target. In light of the final non-coverage decision by Palmetto, the analyst cuts 4Kscore estimates, from $471.0 to $427.2 million for the year 2019, and from $663.9 million to $597.5 million for the year 2020. Meanwhile, Ho’s estimates for 2016 revenue and EPS remain the same at $1,274 million and $0.03, respectively, as well as 2017 revenue and EPS at $1,407 million and $0.03, respectively.

The analyst asserts, “Recall that Novitas previously issued a positive draft local coverage decision that was later rescinded, we believe due to a conflict with Palmetto’s draft non-coverage decision. Though management indicated that the two MACs could potentially have differing/opposing coverage decisions, we believe the Palmetto decision will likely influence Novitas’ final coverage decision.”

“Our conversations with management indicated that Palmetto’s decision could present a more ‘challenging’ dialogue with commercial managed care insurers,” Ho concludes.

OPK’s pipeline drug Rayaldee, designed to treat secondary hyperparathyroidism (SHPT) in patients with stage 3 or 4 chronic kidney disease (CKD) and vitamin D insufficiency, remains on track to launch in November. Ho projects $110 million in sales for 2017. For hGH-CTP, which is an adult indication, the biotech firm anticipates a top-line data read-out by the close of the year, a BLA submission in the first half of 2017, and possible approval at the start of 2018. In regards to the pediatric indication, OPKO anticipates a Phase 3 initiation later on in the year.

As usual, we recommend taking analyst notes with a grain of salt. According to TipRanks, one-star analyst Marcus Ho is ranked #3,128 out of 4,183 analysts. Ho has a 0% success rate and faces a loss of 9.8% in his annual returns.

TipRanks analytics exhibit OPK as a Buy. Based on 3 analysts polled in the last 3 months, 1 rates a Buy on OPK, while 2 maintain a Hold. The 12-month price target stands at $12.00, marking a nearly 21% upside from where the stock is currently trading.screen-shot-10-10-16-at-09-57-pm

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