OPKO Health Inc (OPK) 2015 Q1 法說會逐字稿

Greetings and welcome to the OPKO Health's first quarter 2015 financial results conference call. (Operator Instructions) As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Steve Rubin, Executive Vice President, Administration, for OPKO Health. Thank you, Mr. Rubin. You may begin.

Thank you and good afternoon. Before we begin, any statements made during this call that 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, various risks described in our annual report on Form 10-K for the year-ended December 31, 2014, and subsequent filings with the SEC.

I'd like to discuss the format of today's call. Adam Logal, our Chief Financial Officer, will first talk about our financial and operating results for the quarter. Charlie Bishop, the CEO of our Renal Division, will then provide a brief update on our Rayaldee development program, followed by David Okrongly, President of our Diagnostics Division, who will provide an update of our diagnostic projects. And I will follow up with a prescription wrap-up. Dr. Frost will not be calling the call today as he is in it Italy presenting a lecture at the University of Padua, one of Italy's oldest and most prominent universities where both Copernicus and Galileo once studied. We have the entire team here with us to answer any questions you might have after our remarks. With that, I'll turn it over to Adam Logal, our CFO. Adam?

Thank you, Steve and good afternoon, everyone. We ended March with a cash balance of $348.2 million, reflecting the $295 million up front payments received from Pfizer for the hGH-CTP global collaboration agreements. We further strengthened our balance sheet during the quarter by exchanging approximately $36 million of our 3% convertible notes for shares of common stock. Both the Pfizer transaction and our convertible notes had a significant impact on our results of operations for the first quarter of 2015. As a result of the significant increase in our share price since December 31st, the fair value of the invented derivative associated with our convertible debt increased, and as a result were recorded $50 million in non-cash expense in Other Income and Expenses.

Importantly, this non-cash expense is the result of our share price appreciation given the exchange of $36 million of principal notes during the quarter, future changes in our share price will have a lesser impact. Further, the remaining $52 million of principal notes are convertible by the holders through June 30th as our share price exceeds the predefined [convertible] premium under the indenture. During the quarter we also recorded a non-recurring operating expense of $25.9 million related to our hGH-CTP technology as we licensed that technology out of Israel, triggering a repayment obligation to the Israeli Office of the Chief Scientist. The OCS had previously funded a portion of the development of our hGH-CTP program. Also, in connection with the Pfizer transaction, we recognized $12.5 million of revenue during the period.

We are recording the $295 million up front payments as revenue on a straight line basis over the anticipated development period. Revenue during the first three months of 2015 increased $7.8 million to $30.1 million, principally as a result of the $12.5 million of revenue recognized in connection with the Pfizer transaction. Partially offsetting the Pfizer revenue was lower revenue at OPKO Health Europe as we negotiated a long-term supply arrangement with one of our customers as well as a planned temporary shutdown at our OPKO Mexico manufacturing facility. The arrangement at OPKO Health Europe was completed during the first quarter and the manufacturing facility in Mexico was also brought back on line during the quarter. As a result of the prior items, net loss increased $72 million to $117 million in comparison to the 2014 period.

As I mentioned previously, the 2015 period included a $50 million of non-cash derivative expense as well as non-recurring expense of $25.9 million related to the OCS repayment. In addition, we continue to invest in our R&D programs, and as such R&D expense increased $4.5 million to $25.5 million during the first of 2015. With that, I'd like to turn the call over to Charlie Bishop, the CEO of OPKO's Renal Division. Charlie?

Thanks, Adam. Good afternoon. I'm pleased to update you on our progress in bringing Rayaldee to the U.S. market. We are in the final stages of the preparation and electronic publication of our pending new drug application for Rayaldee, and we expect to submit the NDA to the FDA by the last week of May. The NDA drafting and data compilation process took a little longer than we expected but the extra time has allowed us to carefully and thought any prepare the application for the agency's review. In submitting this NDA, OPKO is requesting FDA approval of the first drug indicated for the prevention and treatment of secondary hyperparathyroidism in patients with Stage III or four chronic kidney disease, and vitamin D insufficiency. There are no other drugs currently on the market or under development that simultaneously control secondary hyperparathyroidism in pre-dialysis patients and correct the most frequent underlying cause of the disease which is vitamin D insufficiency.

Current vitamin D hormone and calcimimetic therapies are effective in controlling elevated plasma parathyroid levels but they leave vitamin D insufficiency uncorrected and, in some cases, they make it worse. Vitamin D supplements are usually ineffective. Despite the widespread use of high dose vitamin D supplementation, vitamin D insufficiency is nearly ubiquitous among pre-dialysis patients. Ominously, vitamin D insufficiency is increasingly associated with faster progression of chronic kidney disease and earlier onset of dialysis. Further, both secondary hyperparathyroidism and vitamin D insufficiency have been linked to increased morbidity and mortality in kidney disease.

We at OPKO are enthusiastic about Rayaldee's upcoming launch and success in the U.S. market. Rayaldee has been clearly shown in four clinical efficacy studies to correct vitamin D insufficiency in virtually every treated patient. The response rates are essentially maximal. These studies taken together also show that effective and long-term correction of vitamin D insufficiency causes a gradual but progressive reduction in elevated parathyroid hormone levels with increasing numbers of parents achieving the ultimate outcome, which is normal parathyroid hormone levels. Rayaldee's gentle efficacy is unaccompanied by any significant side effects.

In fact, the adverse event profile for the product is essentially the same as that for parallel administration of a placebo. Most surprising, Rayaldee's efficacy is unaffected by the progression of kidney disease. Positive phase 3 clinical data with Rayaldee were presented in March at the annual meeting of the Endocrine Society and at the National Kidney Foundation's spring clinical meetings. Last month OPKO presented a detailed new population pharmacokinetic and pharmacodynamic modeling data to the world's leading vitamin D experts who gathered together during last month's vitamin D workshop meeting in the Netherlands. The experts responses to the product have been favorable.

We anticipate FDA approval of Rayaldee in about the second quarter of 2016 and commercial launch as soon as possible thereafter through OPKO's own renal sales force, targeting nephrologists and endocrinologists. Before I pass the teleconference over to David Okrongly, I'd like to mention that our ongoing study of Rayaldee in the oncology setting is progressing well. This study is a dose ranging investigation in which Rayaldee is positioned as adjunctive therapy to denosumab and zoledronic acid both of which are leading treatments for metastatic bone cancer, and together represent a multi billion dollar market. We anticipate releasing preliminary data toward the end of this year. David?

Thank you, Charlie. I'll continue now with the diagnostics update, and that'll be in two parts. First, I'll talk about the 4Kscore test, OPKO's diagnostic test for aggressive prostate cancer from a blood sample, and secondarily I'll talk about Claros, our whole blood finger stick diagnostic platform that can be used in the physician's office to analyze a blood sample in just 10 minutes. With the 4Kscore test, our volumes continue to grow at high double-digit rates per month. We're seeing a tremendous uptake now in many of the settings that have been hesitant to take it on, and 800 urologists have now used the test. We're very happy to welcome the Cleveland Clinic as one of the new users, and we're delighted to see them actually posting it on the website.

We have right now an announcement that we're going to be ending our out-of-pocket pay for the test, and we're going to begin billing insurance under our CPT MAAA administrative code. The $395 out of pocket pay was begun in -- at our launch in first quarter of 2014 because we did not have the code to specifically call out the test, and now that we have that code activated, as of July first, we will begin billing. And we'll begin billing at our full list price of $1,185. Also we got a very nice update from the Memorial Sloan-Kettering group of researchers when they published in the Journal of the National Cancer Institute. The ProtecT study. This was a study that looked at outcomes in the U.K. but also looked at pre-biopsy blood specimens from an unscreened population of over 6,000 men.

The conclusion of that study very closely matched the accuracy of the test that we saw in the United States, U.S. validation study, which was at the [error end] curve with 0.82 for that cohort. This now brings the total of 11 peer-reviewed publications on over 21,000 patients that have been tested with the kallikrein bio markers used in the 4Kscore test. We're very delighted to also be presenting our test at the annual meeting of the American Urological Association. This is coming up later this week. It will be held in New Orleans and we expect over 10,000 attendees at this meeting, all professionals in the urology area, where the 4Kscore test will be featured in multiple podium and poster presentations at the meeting.

I'd like to now move on to an update on our Claros platform. We are continuing to do our PSA beta testing and that's proceeding well now at multiple clinical trial sites. Our beta sites are allowing us to get final experience with customers before we begin our FDA clinical trials. The study designed for the PSA clinical trial is now set, and sites including the Veterans Administration centers are being contracted as clinical trial sites. Our testosterone development program is wrapping up and will utilize the same clinical trial sites as we are using for our PSA trials, which will minimize the amount of time for starting up that trial. And our goal remains to have both testosterone filed and PSA filed, testosterone in 2015 and PSA in early 2016 With that, I'll turn it back over to Steve Rubin to wrap things up.

Thank you, David. So we've had a very exciting start of the year here at OPKO. We've had -- it really seems to be clicking on all cylinders. As you know, the Pfizer collaboration that we did at the end of last year turned out to be -- it's turning out to be a terrific collaboration for us. They're a great group. They're a great group. They're wonderful to work with. And everything's progressing as well as we could expect, if not better for a commercial partner. We recently acquired EirGen Pharmaceuticals in Ireland which we recently announced. It's a growing and profitable specialty pharmaceutical developer which will provide a lot of synergies for us as well as profits and new product introductions in its own right, which we hope to roll out in our Latin America countries as soon as we can get products registered.

You've heard the updates from David and Charlie on Rayaldee and our diagnostic side, and to continue on the biologic side, as you know, we submitted and [have had our ND] accepted for our Factor VII, product, expect to start a clinical trial later the first half of this year with first demand testing. Oxyntomodulin, a very exciting project for obesity and diabetes is expected to start [in] the second half of this year. With that, we'll open it up for questions.

Thank you. (Operator Instructions) The first question is from Rohit Vanjani of Oppenheimer. Please go ahead.

Hi, thanks for taking the questions, everybody. Good afternoon. Dave, for the 4Kscore test, I think you said that you're no longer reimbursing -- or you're no longer selling it out of pocket? When would actual government reimbursement begin or when would payor reimbursement begin?

Yes, just to be clear, Rohit, we're ending the out-of-pocket payment period June 30th. So we're going to be continuing with that for another couple of weeks here. And then July 1st, we're going to be billing both private insurance and Medicare. Now, what that means in terms of payment is to be negotiated, but what we need to do is actually get the bills put to the payors and then get into that discussion with them. So our goal in starting the billing on July 1st with our code is to start the accrual of tests inside of their system that are specific to the 4Kscore test. So our CPT code, 0010M, clearly specifies the 4Kscore panel. And that's how we can now build up enough tests that are being billed to have the discussion with the medical directors at the insurance companies and with Medicare. So time frame on when we'll actually be getting paid is hard to say, but the discussion now begins with the medical directors based on the billing events.

Okay. So have you negotiated with any of the big payors at least or has that process in its entirety will start after you start billing them?

Yes, it really will start after we begin billing them. We've done a few small contracts, but the big -- the big events will happen when we start to put all of our testing through billing processes.

Okay. And what about, I think you're waiting for issuance of the NCCN guidelines. Was there any update on that?

Well, the guidelines have not been released yet for 2015, so we -- I don't have any further update other than we were expecting them to be out early this year, so we'll -- we'll have to just wait and see when they come out.

And then have you done anything with the sales force? I think you had a team of nine with seven in the field. How many do you have right now or how many markets and cities are they in?

We're actively recruiting now, and so that number is above nine now, so we're growing it.

Okay. And have you launched in Portugal, France, and Italy?

We have some limited testing going on outside of Spain right now. We're going to have a review at the AUA with our Spanish team to see where -- where -- where we have the best growth opportunities. They've been having a lot of discussions with European partners.

Great. And then last question for me is for Steve. So you get royalties on oral ROLAPITANT. Is there any deal off of the IV ROLAPITANT as well?

It's all -- yes. Anything that comes out of that, it's the same.

It's all part of the (inaudible - multiple speakers) sorry, go ahead.

Correct. So any use of ROLAPITANT, even if it's beyond what the current indications, we'll get the same royalties on sales. So oral, IV, and if they happen to someday do another indication on ROLAPITANT we'd also collect at that.

But it's capped at 80 -- I think it was $30 million in milestones and $80 million or $85 million in royalties. Is the cap between the two of them or it's separate?

There's no cap on -- I don't believe there's any cap on royalties. Right?

Yes, so the $110 million is milestone payments. The royalties are uncapped.

Okay, so I said that question wrong. The milestone payments are capped in between the two then?

So the milestones set are based upon regulatory achievement, and it's not -- there's no distinguishment between the two. They are what they are. And then obviously to the extent sales are up and we achieve those milestones, they'll be aggregated appropriately between those.

Sure, I understand that. Thanks for taking the questions. I appreciate it.

Sure.

(Operator Instructions) The next question is from Kevin DeGeeter with Ladenburg ThalmannPlease go ahead.

Hey, good afternoon, thanks for taking my question. Charlie, can you comment on any pre-market preparation you're making in terms of building out sales force, working with KOL to refine marketing message, particularly given the interesting finding that, you know, Stage IIs and Stage IVs seem to have kind of similar response? Just generally comment on how we should think of commercial build-outs sort of pre launch here?

Yes, Kevin, thank you very much for the question. Our business plan calls for triggering certain events as soon as the NDA is submitted, and that puts us roughly, depending on how the FDA review goes, about a year from approval. Approval could come, obviously, later than that, if there are any issues that arise, but generally it will be about that time frame. So, our expectation is that before the end of the year, we will start to put in place the key management pieces of our marketing and sales team and then, as we get into the beginning of the new year, we'll hire our sales rep or begin hiring our sales reps and training them. As you know, our intention is to sell Rayaldee with our own dedicated sales force that will be targeting nephrologists and endocrinologists.

In parallel with that effort, we have a lot to do to prepare for marketing of Rayaldee. Those preparations lie in the areas of assembling the right messages to go to nephrologists and endocrinologists so that uptake of the product is accelerated. We also have significant work to do with the payors in order to make sure that we can have Rayaldee on the formulary as quickly as possible, and we are also contemplating beginning more development efforts to expand the approved indications for Rayaldee. And one of those is already ongoing, as I mentioned in the oncology area.

Great. Very helpful. And, David, when we think of reimbursement here for the 4Kscore, is there any particular data set that you're waiting for publication on? These things can be impactful on these discussions with payors or is it your view that the majority of the data that you're going to use to go to those payors is already out and in published form?

I think we have all that we need. The dossier is rich with11 peer-reviewed publications over 21,000 patients tested. I would, dare to say that this is the most well-studied diagnostic test that's ever come to market. We are obviously anticipating NCCN guidelines which could be kind of the cherry on top for us because that would definitely take away a barrier around investigational rather than standard of care for the test. So -- but we have more evidence, I think, than anybody in the -- certainly in the area of prostate cancer has ever brought to the table for a new test.

Okay. Great. And then can you just remind us, with regard to the phase I study for the Factor VIIa program, just a general study design and really I guess what I'm interested in is do you anticipate being able to capture some pharmacodynamic data in that study that is going to be sort of insightful on helping appreciate how the product is differentiated, or is that really going to be a study -- a phase II study that we'll need to wait to see that kind of data?

So this is Gili from (inaudible) biologics, I'll address your question. As Steve mentioned, the study -- we're in the setup process and we do anticipate that the first patient will be injected later next month, actually. The study will consist of five doses and you can find the outline of the study in clinicaltrials.gov, but in general we do expect to collect pharmacokinetics and pharmacodynamic data as well as some exploratory end-points like thrombin generation and [thromboelastography] which will imply potentially on the clotting capability and the long-acting properties of our long-acting Factor VIIa, and will provide us some initial understanding about this product capabilities to maintain in the studies in preparation to the next study, which will potentially be a pivotal phase II/III study in hemophiliac patients.

That's very helpful. So you anticipate potentially moving into a pivotal study. Sort of how quickly potentially I guess (inaudible) the question of the total duration of the phase I study.

Yes. That's true.

So when do you hope to be able to move into a pivotal on VIIa?

So, we do anticipate to complete the phase IIa study next year, and thereafter after a discussion with the FDA and the European authorities, to initiate a pivotal phase II/III study. You do need to remember that we are talking about an orphan indication, and it's it might take longer to recruit those patients. Obviously we'll do the best we can to accelerate this program.

Great. Thanks so much. I'll get back into queue.

This concludes the time allocated for questions. I'd like to turn the floor back to Mr. Steven Rubin for closing comments.

Well, thank you again for participating, and just reiterate, a very exciting top for us after our years of getting to this stage and we should have a terrific rest of the year with some great news and some great pivotal events. Thank you again.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.