OPKO Health Inc (OPK) 2014 Q3 法說會逐字稿

Greetings and welcome to the OPKO Health Third-Quarter 2014 Financial Results Conference Call. At this time all participants are in a listen-only mode. A question and answer session will follow the formal presentation.

(Operator Instructions)

As a reminder, this conference is being recorded.

I would now like to turn the conference over to Mr. Steve Rubin, Executive Vice President of Administration. Thank you, Mr. Rubin. You may now begin.

Thank you and good morning.

Before we begin, I would like to remind you that any statements made during this call which are historical will be considered forward-looking, and as such, will be subject to risks and uncertainties which could materially affect our expected results, including without limitation the various risks described in our annual report on Form 10-K for the year ended December 31, 2013, and our subsequent filings with the SEC.

I would like to briefly discuss the format for today's call. I will start the call with a brief overview and Adam Logal, our Chief Financial Officer, will then talk about our financial results for the quarter. Charlie Bishop, the CEO of our Renal Division, will provide a brief update on the Rayaldy development program, followed by David Okrongly, President of our Diagnostics Division, who will provide an update of our diagnostics projects, and Dr. Frost will follow up with a wrap-up.

We have the entire team here to answer any questions you might have after our prepared remarks.

And with that I will turn it over to Adam Logal, our CFO.

Thank you Steve, and good morning everyone.

OPKO's pharmaceutical operating units continued to show positive results during the three- and nine-month periods, with increases of $0.7 million and $7.8 million in year-over-year product revenue growth, principally driven by growth at our FineTech API business. Pharmaceutical product revenue grew despite foreign currency pressure impacting our Latin American businesses in comparison to the 2013 periods.

Total revenue for the three and nine months of 2014 was $19.8 million and $65.6 million compared to $20.6 million and $75.8 million for the comparable periods of 2013. The three and nine months of 2013 included nonrecurring license revenue of $1.3 million and $15.7 million related to our 2013 transactions with Pharmsynthez and RXi Pharmaceuticals.

We continue to see increases in the adoption of the 4Kscore Test in the United States and we launched the 4Kscore Test in Europe in mid-September. We expect to launch in Latin America later this year. In addition, we also anticipate receiving the first milestone during the fourth quarter from TESARO, now that its NDA has been accepted by the FDA, as announced last week.

Turning to our operating expenses, we had several events during the period that I would like to highlight. As a result of our successful Phase III clinical trials for Rayaldy, our net loss for the three and nine months of 2014 includes an increase in the valuation of our contingent consideration payable to the sellers of Cytochroma. This increase in value is the result of a significant increase in the probability of future development milestones being met as a result of the success of the clinical trials.

The three- and nine-month periods include $17.7 million and $19 million of contingent consideration expense related to the increase in fair value of future payments to be sellers of Cytochroma, which can be satisfied in cash or stock at our discretion. Research and development expense increased $9.4 million to $20.5 million for the three months, and increased $27.2 million to $57.7 million for the nine months ended September 30, 2014. In addition, we recorded nonrecurring in-process research and development expense of $10 million related to the acquisition of Inspiro during the nine months 2014.

Our net loss was $48.7 million for the three months ended, and $118.7 million for the nine months ended September 30, 2014, in comparison to $60 million and $98 million for the comparable periods of 2013. In addition to the items I previously mentioned, our net loss for 2013 included higher non-cash expense related to the mark-to-market of our derivative instruments in comparison to the 2014 periods.

Cash used by operations of $65.6 million during the first nine months of 2014 primarily reflects our ongoing investments in our research and development programs, principally our late-stage clinical trials for Rayaldy and human growth hormone. We ended September with approximately $118 million in cash and cash equivalents, providing sufficient liquidity to fund the development of those late-stage development programs.

Thank you, and I would like to turn the call over to Charlie Bishop, the CEO of OPKO's Renal Division. Charlie?

Thanks Adam, good morning.

I am pleased to report that OPKO is making great strides in moving Rayaldy closer to commercialization in the US. Since the last earnings call, we have reached two important milestones in our Phase III clinical program.

In August and September we reported positive top-line data from the two pivotal Phase III trials. And as of today, we have generated sufficient safety data from the ongoing open label extension of these trials to enable our forthcoming submission of a new drug application to the US Food and Drug Administration.

By the way I'm pleased to confirm that our preparation of the NDA is well-advanced. Our targeted submission date is prior to year end, which will put the NDA in a position to be filed by the FDA in the first quarter of 2015.

We also have reached two other milestones that are needed prior to NDA submission. We held a successful pre-NDA meeting with the FDA, during which we reached agreement on all points regarding the forthcoming NDA, and we successfully completed an FDA-mandated carcinogenicity study of calcifediol, the active agreement in Rayaldy.

This study concluded that calcifediol showed no neoplastic activity through the highest dose, which was 33-fold higher than the maximum therapeutic dose. As you may know, the FDA likes to see at least a 10-fold margin of safety.

Further, in August, we submitted a new investigational new drug application to the FDA for Rayaldy as an adjunctive therapy for cancer patients. The IND describes a study which will examine the safety of escalating Rayaldy doses in patients with prostate or breast cancer that has metastasized to bone and who require treatment with antiresorptive or bone sparing agents.

This is the first trial intended to expand the potential market for Rayaldy beyond chronic kidney disease. The FDA approved the IND on schedule in September, and we plan to start the study later this month.

Over the past quarter, we have continued manufacturing large quantities of Alpharen tablets in preparation for the plan to near-term start of a final Phase III trial needed for marketing approval in both the United States and Europe.

Lastly, we secured a late-breaking clinical presentation slot at next week's meeting of the American Society of Nephrology on Saturday, November 15. We will present more detailed data on Rayaldy then.

Here's a quick glimpse of the data that we will present next week. Our three Phase III trials involved a total of 429 patients with stage III or IV chronic kidney disease, elevated plasma parathyroid hormone, or PTH, and vitamin D insufficiency. Two of the trials were pivotal and they had identical randomized double-blind designs.

Patients were recruited into the pivotal trials from 77 US sites and were randomized two to one to receive daily doses of either Rayaldy or placebo. Patients who completed these two trials are being treated at their election for an additional six months with Rayaldy during a third ongoing open label extension study. The two completed trials successfully met all primary efficacy and safety endpoints.

The primary efficacy endpoint was a responder analysis in which responder was defined as a subject who demonstrated an average 30% decrease in plasma PTH from pretreatment baseline. The observed response rates were significantly higher with Rayaldy than with placebo, and were similar in stages III and IV chronic kidney disease.

PTH lowering was gradual and progressive over the entire one-year treatment period. Rayaldy corrected vitamin D insufficiency in 97% of treated patients versus 6% with placebo. Safety and tolerability data were comparable in both treatment groups.

These data will strongly support the conclusion that Rayaldy is safe and effective for its intended indication, namely the management of secondary hyperparathyroidism in patients with stage III or IV chronic kidney disease and vitamin D insufficiency.

At this point I will turn the presentation over to Dave Okrongly. Dave?

Thank you very much, Charlie.

Good morning everybody, my name is David Okrongly and I'm President of OPKO Diagnostics. For the next several minutes I will give you an update on our commercial activities related to the 4Kscore test, OPKO's blood test for accurately identifying risk of aggressive prostate cancer, and also update you on the clinical validation activities related to the Claros 1 physician office blood analyzer.

I'll start with 4Kscore test. We begin the commercial rollout in May of this year, really, with the announcement at the AUA of our clinical trial results and we've continued to move forward with over 360 physicians now having ordered the test. And importantly now we are seeing that many are now incorporating the 4Kscore into their routine clinical practice. Our sales effort, while still relatively small with only 10 field reps, will continue to grow as we progress on our reimbursement of the test with both public and private payers.

On the topic of reimbursement, our plan for both Medicare and private insurance coverage for the 4Kscore test has continued to progress on schedule. We, this morning, are announcing that we have an online publication of the OPKO US clinical validation trial, now out in European Urology. European Urology is the highest scientific impact factor urology journal in the world, and having access to a published peer-reviewed paper on our US clinical trial data is very important.

The payers have requested peer-reviewed publication of the US data to complement the European data that we've talked about in the past. We expect this development to be extremely helpful for our future discussions with payers.

And importantly, the 1,000 patients that were enrolled in the US clinical trial, we expect to have a number of other studies emanating from that publication. We've recently submitted multiple abstracts on the very subpopulation analyses and outcomes of patients for consideration in the 2015 annual meetings of the American Urological Association, the AUA, and the European Association of Urology. These abstracts will, in due course, be submitted as full papers leading into leading urology journals.

But just to give you a snapshot of what those results are, we've shown that the 4Kscore test is highly significant when predicting the number of positive biopsy cores, the length of tumor associated with those positive biopsy cores, and also that the median 4Kscore was significantly higher among men who had an upgrade to Gleason 7 or higher after a radical prostatectomy. All these data are consistent with the picture of the 4Kstore test being a very significant predictor for risk of aggressive prostate cancer prior to undergoing any kind of invasive prostatic procedures.

At a recent ASCO meeting, an abstract Memorial Sloan-Kettering team was published demonstrating that the 4Kscore test is also associated with risk for development of distant prostate cancer metastases. We understand that a full manuscript is in development from the team. Why this development is so important is that now we have 20-year data showing that a 4Kscore test is, in fact, a very long-term predictor of risk, of ultimate risk of having aggressive prostate disease as reflected by prostate cancer metastases.

I'm happy to report that our CPT code application to the 4Kscore was presented to the AMA CPT Editorial Board on October 10, and that a CPT code has now been accepted for the 4Kscore test. The CPT code is a MAAA Category III code and will be published on the CMS website in the January-February timeframe.

We're also in discussions with a number of people familiar with a new law that was enacted this year called PAMA, which will impact advanced diagnostic laboratory tests such as the 4Kscore test. This law is in implementation and we plan to be working very closely with CMS to ensure that the 4Kscore test is covered under some of the conditions related to PAMA.

Additionally, the 4Kscore test was on the agenda for discussion at the recently held NCCN guidelines committee meeting for prostate cancer early detection. We remain confident that the evidence accumulated to date on the 4Kscore test, including our now published US validation clinical trial, will be sufficient evidence for inclusion in the next update of the NCCN guidelines for prostate cancer early detection, which we expect to be published in early 2015. We've had and will continue to have meetings in the coming months with various stakeholders in both private and the public payer sectors to ensure that coverage for the 4Kscore test will be broadly available in 2015.

We also announced the launch of the 4Kscore test through OPKO Health Spain on September 15, and have seen excellent interest in Spain, where the initial launch efforts have been focused. As a result of specific market interest in Spain, we've created a new version of the 4Kscore test that does not include the DRE component. You may recall that seven components, four biomarkers, and three clinical parameters, age, prior biopsy history, and the DRE, are components of the four 4Kscore test.

Of these seven components, the DRE is the least important from an overall accuracy perspective. And so we've developed the test -- are now using the test without DRE in Spain. We think that this could be very important, particularly as we migrate the 4Kscore test into the primary care setting.

I will now move to the Claros 1 platform, which is our rapid physician office testing system that uses a finger-stick blood sample. We've had discussions with the FDA on both the PSA and testosterone clinical trial protocols. Our strategy for both is now finalized, and we expect to have agreement with FDA on both pre-submissions by the end of the year.

Both clinical trials will be initiated in the first quarter of 2015. We expect that the testosterone clinical trials to be completed and filed in second quarter 2015, and the PSA clinical trials be completed and filed in third quarter 2015.

Importantly, the testosterone assay has led us to the development of a cassette that will be used with the Claros 1 analyzer that has the ability to incubate a blood sample prior to measuring the blood level of testosterone. This is necessary because most of the testosterone in a blood sample is bound to proteins in the blood and must first be released from these binding proteins before it can be measured.

This is also the case for vitamin D, and we are using the same cassette design to enable the measurement of vitamin D in blood.

At this point I will turn it back to Dr. Frost.

Thank you, David.

I'd like to just give you my perspective of what's going on at OPKO now. First of all, we have always been interested in working on big projects. What do I mean by big projects? I mean those that have potential for large sales and profits worldwide.

Also, in my mind, it's important for a small company like OPKO to focus on products that have low developmental risk, which I think applies to all of our projects, and on the other hand, when they come to market, to be marketed to a very small, relatively small that is, field of physicians and surgeons. So for example, with the 4Kscore we are marketing and selling to the urologists. Eventually the community of physicians using the test will be expanded.

With Rayaldy, we are marketing to the nephrologists. And we're already beginning our marketing strategy; we have on board one of the top people in the field who has had great experience in introducing vitamin D products for other companies. With the growth hormone product that we're working on that has not been mentioned yet, that will be marketed to endocrinologists, and by the way, that project is moving along very nicely in its clinical trials.

Factor 7 for hemophilia will begin clinical trials next year, early next year, we hope, and will be marketed to hematologists. Now, on a opportunistic basis, we always consider an opportunity to out-license, as we've done with rolapitant, which we've licensed to TESARO. And as we've announced previously, their NDA has been filed and now accepted and as you heard will be beginning to receive milestone payments very shortly.

Another product that will be entering clinical trials next year that is slightly different in terms of the marketing effort is oxyntomodulin. Oxyntomodulin for overweight and obesity is a unique product that is a naturally-occurring peptide that is very short acting and which we have been able to develop into a once-a-week injectable form, that in mouse models of obesity has performed amazingly well, bringing the animals back to a normal state, both with respect to their weight and with respect to the type-2 diabetes that they all developed during the course of the experiments.

Now, oxyntomodulin for weight loss, in overweight and obese people, of course will appeal to a much, much larger market but our strategy is that we will be building a sales force with the other products that we've mentioned and, by the time oxyntomodulin comes to market, we will be able to afford to field a much larger sales force. And as we mentioned before, the need for a safe and effective product for overweight and obesity is so enormous that we, behind the scenes, are focusing a lot of our attention on this product.

Now, as time goes, on we will be presented with many other new product opportunities, but I feel that our present pipeline is more than adequate to carry OPKO quite far.

Thank you, and now we will be open for questions.

(Operator Instructions)

Kevin DeGeeter, Ladenburg.

Hi, this is actually [Jay Colby] on for Kevin this morning; thank you for taking my questions. The first is for the Phase I study in long-acting Factor VII. Could you talk about the study design and whether the study will be in patients with active disease or healthy controls?

We're still working on the design of the trial. It's -- we're at the phase of organizing discussions with the experts in the field. So come back to us during the next call.

Okay, great, thank you, and then secondly, can you discuss on the current pre-launch marketing plans for Rayaldee? Specifically, any thoughts to the timeline and size of the sales force?

Hi Jay, this is Charlie. We are sizing our sales force now.

It will be very similar to the sizes of the sales forces that other companies have used that address the nephrology/endocrinology space. The most recent example, of course, that you are aware of is [Curex] has just hired their sales force. Most of these sales forces have between 60 and 100 personnel and ours will be similar.

Okay. Great. Thank you.

Eun Yang, Jefferies

Good morning, this is John Ryan and in for Eun. Thanks for the my questions. Just a couple quick questions, what were -- any color on what your 4Kscore sales were in third quarter?

We haven't specifically broken out 4Kscore revenue yet John, so we are still seeing, continuing to see, revenue build, as I mentioned, as Dave highlighted, but we're not specifically calling out the revenue numbers.

Okay great. Now with 4Kscore [test consolidation] study published, any color on how you might expect commercial reimbursement trajectory to proceed and when you might expect meaningful revenues?

The publication is one of the key milestones that reimbursement agencies are looking for. We have, of course, the nine peer-reviewed publications out of Europe so this is really kind of the cherry on top, if you will, for all of the clinical validations. We also have the long-term outcomes data now starting to emerge in the published literature.

I think from a peer-reviewed publication perspective we're very strong. We are really ready to go.

I mentioned the NCCN guidelines meeting which was held on November 5. This is one of the leading guidelines for determining care and management of prostate cancer, especially early disease and the mountain of evidence we think will be more than sufficient to get us into the guidelines, another important check-the-box for the reimbursement agencies. And now having been in front of the AMA CPT editorial board, we have a Category III code that we can use to start the discussion with the reimbursement agencies about how to pay the bill.

So it looks to us very much like our 2015 will be a year where we start to see an increasing number, beginning with Medicare and some of the privates for coverage with the test. So 2015 for us is really going to be, I think, the breakout year because one of the major objections we hear, obviously talking to urologists, is that if the test were covered I would have a very easy time with getting my patients to use the test. We're still seeing, though, with urologists who are adopting the test, that about 50% of the patients presented with the 4Kscore test, as an option for them, will actually pay the out-of-pocket $395.

Got it, and then just a couple quick further ones. Under CMS coverage, how much is the 4Kscore co-pay? And then when are you planning to file for PMA approval for 4Kscore now that the Phase III data has been published?

Right now the patient is paying $395 out-of-pocket for the test. Our list price for the test is more than that. The negotiations about how we would get reimbursed for the test could take several different forms and that's yet to be discussed with CMS in any kind of detail. So your second question was related to?

Sorry, yes, just on potential filing for PMA approval for 4Kscore.

So the 4Kscore is a laboratory-developed test. We fall under CLIA guidelines, not under FDA guidelines for introducing that test. And as an advanced diagnostic laboratory test, which is a specific category of diagnostic test carved out in the new PAMA law, we'll continue to move in that direction, of course, paying very close attention to FDA and their guidelines that they have announced about regulation of laboratory-developed tests.

We're confident that the way we've conducted all of our clinical work related to the US trial would definitely stand muster with FDA in any kind of a PMA process. But exactly how those guidelines get implemented and exactly how they apply to a diagnostic like the 4Kscore test is yet to be determined.

I see, and then lastly, any color on the trial design, trial start date for oxyntomodulin? And more broadly are you planning to out-license products like Rayaldee, growth hormone, and Factor VII programs? I will jump back in the queue, thanks.

So far as the oxyntomodulin, again, we're not yet at a point of designing the trials. The FDA does have some guidelines as to what they require for approval of a drug to treat overweight and obesity, but again there's a group of great experts in the field that will want to convene to go over the study designs. What was the other question?

Out licensing. I would just say this, that we received expressions of interest frequently from companies that are interested in our products for distribution, and they come from American companies and very often from companies outside of the United States and we consider them all. At the moment we haven't signed any agreements of this sort but we'll be sure to let you know as soon as we do, if we do.

Thank you.

(Operator Instructions)

Rohit Vanjani, Oppenheimer.

Dave, so any details on the progression of the testing orders, the 4Kscore I mean, as you move from 2Q to 3Q and then 3Q to 4Q? I think you were anticipating a ramp after AUA. Has that ramp continued in 3Q and then into 4Q?

Yes, we've seen a very steady progression on the ramp and we've now hit a pretty strong growth curve. What we're doing now is actually targeting markets around the United States where we believe the test will be particularly strong in adoption. And we're putting concentrated sales efforts into these markets to attempt to kick the slope of that growth curve up even higher.

Okay. And then you launched in Spain, I believe, in September, mid-September you said, and you were moving to Portugal, Italy, France. Have you moved into any of those places and have you recorded sales in any European country yet?

We've recorded sales in Spain and that's been the concentration of the OPKO Health Spain sales force. And right now it's really developing the market with a couple of the key opinion leaders in Spain in anticipation of the EAU next year, where the test will get a lot more broader broadcast in both -- amongst the urologists of Europe and moving the test into other countries in Europe. Right now our focus is on Spain and getting a cadre of key opinion leaders in Spain adopting the test which is actually going quite well.

And then how would you describe pricing there in Spain? And then where do you anticipate it to go from here?

We've priced it identically in Spain as in the United dates so it's a EUR295 out-of-pocket expense for the time test. EUR295.

And do you expect that to hold going forward?

Yes we do. The value of the test, we think, goes well beyond what the patients are paying out-of-pocket and, like I said, in the US the reaction is very similar to that -- in Europe to what we've seen in the US where, particularly men who have anxiety about an elevated PSA or have had a prior biopsy, the EUR295 is something they'll readily pay for the test.

Okay, and then on the TPT code issuance, I think, I believe I heard that you had your CPT editorial panel meeting and that you got issuance. I thought it took a couple of months for them to get back to you. What was their reason that they got back to so quickly, I guess, on the issuance?

Well, they get back to quickly just to say that the vote was -- that you were accepted. The publication takes some time. And we expect to the publication of the actual CPT code to take place sometime in the January, February timeframe.

Okay. And then on Claros 1, I think I heard you say you're going to file testosterone in 2Q 2015 and then PAS in 3Q 2015. Does that mean we won't see sales on Claros 1 until 2016? Is it 3 to 6 months for the filing?

We should the sales in 2015. The testosterone test is actually taking on more and more importance as time continues to go on, both in monitoring them on therapy, androgen deprivation therapy, and then on testosterone replacement therapy. And also alongside of PSA, when men are being tested after a diagnosis of prostate cancer and are perhaps on active surveillance. So we're seeing testosterone interest growing and we expect that once we have approval for testosterone that will give us the opportunity to place the test towards the second half of 2015.

Okay, and then I guess Steve, this is for you, for human growth hormone, I think the Phase III you said it continues to advance, Phase II for peds were -- we saw interim data. When can we see the Phase III trial results, I guess, and how long before we see the Phase II in peds? The full data?

The full data will come out early next year for the Phase II. Obviously we continue to -- when we go to conferences, including one recently in Singapore, we disclose more and more of the data as it becomes available. We have actually had some nine month data at our last presentation but the full set of data will be early next year.

The Phase III data, obviously is blinded, it's a [six-month at six-months]. So it will be -- and it will continue to enroll well, but it's going to be, I would say, second half of next year before we have any top-line data disclosure on the adult.

So would we still anticipate sales in 2016 for human growth hormone in the adult indication?

Yes.

Okay and then lastly for Charlie, what is the update on the Alpharen trials? Is there any update there?

Yes, Rohit, the Fermagate trial, Alpharen trial, is scheduled to start Q1 of 2015 so this will be a Phase III trial that addresses, as I mentioned, global approval. We're thinking US and Europe primarily.

Okay. Great. Thanks for taking the questions, I appreciate it.

Thank you. We have no further questions at this time. I would like to turn the floor back over to Management for any closing remarks.

Thank you all for attending and we look forward to being in touch with you next quarter.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation.