What happened

After reporting a year-over-year decline in revenue that was worse than industry watchers expected, OPKO Health (NASDAQ:OPK) saw its shares fall 16.7% on Thursday.

So what

Although the healthcare company is benefiting from significant demand for COVID-19 tests, rising demand in the final weeks of the first quarter wasn't enough to offset declining demand for lab services caused by widespread shelter-in-place orders that reduced visits to primary- and specialty-care doctors.

A Covid-19 test tube.

Image source: Getty Images.

OPKO's revenue totaled $211.5 million in the quarter, down 4.9% from the same quarter last year. The company's diagnostics services sales were $170.8 million, down from $178.9 million in the comparable period of 2019. The dip in testing volume at its BioReference Labs unit was partly offset by an increase in revenue from pharmaceuticals. Sales of Rayaldee, a vitamin D3 analog for the treatment of secondary hyperparathyroidism associated with vitamin D insufficiency in stage 3 and 4 chronic kidney disease, grew to $9.9 million from $5.8 million in Q1 2019. And total pharmaceuticals revenue was $31.1 million, versus $25.3 million a year ago.

The company's net loss per share was $0.09 on a GAAP basis, which was in line with analyst forecasts. Its $59.1 million net loss was an improvement from an $80.8 million net loss last year. A reduction in research expenses associated with the completion of its phase 3 study with Pfizer on the human growth hormone somatrogon, contributed to its better bottom line.

Now what

OPKO Health began providing testing for the SARS-CoV-2 coronavirus in various states, including New York, on March 13. Initially, volume was limited because of testing constraints, but volume has expanded significantly over the past month. OPKO has performed 700,000 COVID-19 tests through Wednesday, and current capacity has increased to 35,000 tests per day. Management has also begun to offer COVID-19 antibody testing, with plans to process 400,000 tests per day within two weeks.

The increase in COVID-19 testing volume is encouraging, but it remains to be seen if this can fully offset declining demand for lab services related to other indications. If not, then OPKO's balance sheet could pose a problem because the company exited the quarter with just $35 million in cash, although it does have access to an untapped $100 million credit facility courtesy of its founder, Phillip Frost.

Looking further out, investors will want to keep tabs on Pfizer's submission of somatrogon for Food and Drug Administration approval. OPKO Health anticipates Pfizer will file for a green light in the U.S. later this year, and data that could support filings in Europe and Japan is anticipated this year, too.