What happened

Shares of Opko Health Inc. (NASDAQ:OPK), a drugmaker and diagnostic services provider, fell 24% in February, according to data from S&P Global Market Intelligence. No single event was to blame, but the abrupt departure of the diagnostic division's president in late January cast doubt on the segment's ability to turn itself around.

So what 

Late last January, the president of BioReference Laboratories resigned without warning, and the company still hasn't announced a replacement. Opko acquired the diagnostics business in 2015 for $1.47 billion, and it's become more of an albatross than a growth driver. It looks like fear of further losses pressured the stock last month.

Person making frustrated gesture while looking at a downward sloping chart.

Image source: Getty Images.

Many of those fears materialized when the company reported fourth-quarter and full-year results. Opko reported increased selling, general, and administrative expenses at BioReference and its pharmaceuticals segment that exploded since the acquisition.

Total service revenue fell 12% last year, but a look beneath the headline numbers reveals a more disturbing trend. Decreased reimbursement for pricey genetic tests dragged gross profit from diagnostic services 26% lower to just $330 million last year. That wasn't nearly enough to cover expenses, which caused the segment's operating loss to explode from $3.4 million in 2016 to $136.5 million last year.

Now what

Opko Health finished 2017 with just $42 million in working capital after losing a stunning $309 million. That loss included $147.7 million in nonrecurring or noncash items, but I don't see an end to the losses coming this year. Fourth-quarter utilization rates for the 4Kscore test increased just 15% compared to last year, and Rayaldee sales reached just $12.5 million last year.

While the test's popularity and sales of Rayaldee are moving in the right direction, they aren't going to drive Opko to profitability before it needs to raise more capital. In February, the company raised $55 million through a private placement of convertible notes to bolster a balance sheet that was less the value of the notes.

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