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Why Opko Health Rallied 15% Today

By Todd Campbell – Updated Sep 17, 2018 at 4:53PM

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Investors are betting that a recent tumble will provide a good buy opportunity.

What happened

After the U.S. Securities and Exchange Commission (SEC) levied charges against Opko Health (OPK 3.17%) and billionaire CEO Phillip Frost last week, bargain hunters bid the company's share price up 15% on Monday.

So what

The SEC is suing 10 individuals, including Frost, as well as 10 associated entities, including Frost's Frost Gamma Investments Trust and Opko Health, for participating in "long-running fraudulent schemes that generated over $27 million from unlawful stock sales and caused significant harm to retail investors who were left holding virtually worthless stock."

A wooden gavel sitting on $100 bills spread out on a flat surface.


The charges allege a group of "microcap fraudsters" used "classic pump-and-dump schemes" to accumulate large positions in companies that they later sold at inflated prices following illegal promotional activity. According to the SEC's complaint, Frost participated in two of three schemes orchestrated by the group.

Following the SEC's announcement, the Nasdaq halted trading in Opko Health pending a review of information. The trading halt was lifted last Friday, and investors reacted by flocking to the exits. The sell-off appears to have attracted the attention of bargain-hunters who are betting Opko Health will survive the setback.

OPK Chart

OPK data by YCharts

Now what

Opko Health and Frost have issued separate statements aimed to shore up investor confidence. However, SEC allegations aren't made lightly.

If Opko Health escapes unscathed by the SEC, then investors' attention will return to the company's prospects. Unfortunately, the company's performance lately has been lackluster. Partner Tesaro (NASDAQ: TSRO) walked away from Opko's chemotherapy-induced nausea and vomiting drug, Varubi, earlier this year following concerns over safety. Meanwhile, sales of Opko's hyperparathyroidism treatment, Rayaldee, have been anemic. Despite winning FDA approval in 2016, Rayaldee only had $4.8 million in sales in the second quarter of 2018. The company's lab business has also seen sales slip. Altogether, Opko Health's revenue declined 10% to $263.7 million last quarter.

Overall, Opko is "confident" that this "matter will be resolved favorably for the company," and Frost plans to "fight the charges that have been brought against me and will fight to clear my name," but there's no telling how this shakes out from here.

Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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