The share price of Opko Health Inc. (NYSE: OPK; TASE: OPK) dropped 18% on Nasdaq last Friday, followed by a similar loss today on the TASE, following a recommendation against insurance reimbursement for 4Kscore, the company's test for diagnosing prostate cancer.
Novitas, which evaluates decisions for US government medical insurer Medicare in over 10 US states, including New Jersey, where the main laboratory for processing the test is located, has stated that the benefit from the test does not justify its cost for the government insurer. The company's statement is only a recommendation; the public, including Opko itself, is invited to respond to it by July 5, 2018.
Opko said that it plans to respond by that date. The company's share price has fallen 27% since the beginning of the years, driving its market cap down to NIS 9.8 billion.
Disappointing revenue from the test
4Kscore assesses the aggressiveness of prostate cancer for the purpose of determining treatment. It is one of the two main independent products that Opko is marketing (the other is Rayaldee). Three years ago, Opko acquired the BioReference Laboratories chain so that the chain could promote this test, among other reasons. Revenue from the test was nevertheless not high. Opko is not reporting exactly what its revenue from the test was, probably because it was not enough to justify reporting it.
The company has been advertising 4Kscore on television since last 2017 in order to increase public awareness of the test. The negative coverage recommendation, however, is liable to thwart these efforts. Most of the company's market consists of people with Medicare coverage, which applies to every US citizen from age 65.
Opko said in its announcement that several important medical organizations in the US and Europe recommend the use of 4Kscore as part of the medical protocol for prostate cancer. The company adds that its test has been used on 25,000 patients to date and ordered by 9,000 doctors. Its results have been reported in 18 medical studies. The Motley Fool website mentioned that when the test was developed, certain analysts had said that its market potential could reach $1 billion, but this figure now appears very distant. It was also reported that this was not the first negative coverage recommendation for the project. Opko reported another negative recommendation earlier this year, although the first recommendation was by a less influential agency. These two recommendations can also affect the opinions of other insurers.
Opko's example is typical of both Israeli and US companies with very experienced management and promising approved products which nevertheless failed to obtain indemnity from US insurance. Government and private insurance companies have become very selective in recent years about the products for which they are willing to provide indemnity.
Opko has undergone upheaval recently, with the company announcing its intention of being delisted from the TASE and then retracting the decision. The market perceived its recent financial statements are reasonably satisfactory, following poor results in 2017, up until the current negative recommendation.
Opko's revenue totaled $254 million in the first quarter, down 5%, compared with the first quarter of 2017, but 31% more than in the fourth quarter of 2017, which was especially weak for the company. Opko managed to stabilize the business of BioReference Laboratories, which currently accounts for most of Opko's revenue ($211 million in the first quarter). Revenue from the Rayaldoo product amounted to $7.3 million.
Opko lost $43 million in the first quarter, compared with a $5.34 million loss in the corresponding quarter last year. The company has other products in the pipeline, including delayed release growth hormone for children now undergoing a Phase III trial, a product for treatment of side effect of a benign prostate tumor (loss of muscle mass and weight increase) undergoing a Phase II trial, and a drug for treatment of obesity and diabetes undergoing a Phase II trial.
Published by Globes [online], Israel business news - www.globes-online.com - on May 21, 2018
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