OPKO Health Inc (OPK) 2015 Q2 法說會逐字稿

Good afternoon and welcome to the OPKO Health second quarter 2015 earnings call. Today's presentation is being recorded. I would now like to turn the conference over to Executive Vice President, Administration, Steve Rubin.

Thank you and good afternoon. Before we begin, I'd 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, 2014, and our subsequent filings with the SEC.

I'd like to discuss the format for today's call. Adam Logal, our Chief Financial Officer will first talk about our financial and operating results for the quarter. Jane Hsiao, our Vice-Chairman and Chief Technical Officer will then provide a brief update on our biologic programs. Charlie Bishop, the CEO of our Renal Division, will next provide an update on our Rayaldee development program, following by David Okrongly, President of our Diagnostics Division who will provide an update of our diagnostics projects. And finally, Dr. Frost will follow up with a brief wrap-up.

We do have the entire team here with us to answer any questions you might have after our remarks. And with that, I'll turn it over to Adam Logal, our CFO. Adam?

Thank you, Steve, and good afternoon, everyone. We ended June with a cash balance of $221 million reflecting the $295 million upfront payment received from Pfizer for the hGH-CTP global collaboration agreement, partially offset by cash used in our acquisition of EirGen as well as cash used in our continued investment in research and development during the first half of 2015.

We strengthened our balance sheet during the first half of 2015 by exchanging approximately $41 million of our 30% convertible notes for shares of our common stock. Both the Pfizer transaction and the convertible notes continue to have a significant impact on our results of operations for the first half of 2015.

As a result of the significant increase in our share price since December 31, the fair value of the embedded derivative associated with our convertible debt increased, and as a result we recorded noncash charges in Other Income and Expense for the three and six months ended of approximately $17 million and $66 million respectively. Importantly, this noncash expense is a result of our share price appreciation, and with the exchange of $41 million of principal notes during 2015, future changes in our share price will have a lesser impact. Further, the remaining $46 million of principal notes continue to be convertible by the holders through September 30 as our share price exceeds the pre-defined conversion premium under the indenture.

During the six months ended June 30, 2015, we also recorded a non-recurring operating expense of approximately $26 million related to our hGH-CTP technology as we license 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.

Further we recognized $17.7 million and $30.2 million of revenue during the three and six-month periods related to the Pfizer collaboration agreement. As a reminder, we are recording $295 million upfront payment as revenue on a straight line basis over the anticipated development period.

Revenue during the three months ended June 30, 2015 increased approximately $19 million to $42.4 million, principally as a result of the revenue recognized in connection with the Pfizer transaction, and revenue generated by EirGen post-acquisition.

Revenue for the first six months of 2015 increased $26.7 million to $72.5 million as a result of revenue recognized for Pfizer and EirGen, partially offset by 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 of our OPKO Mexico manufacturing facility. The arrangement at OPKO Health Europe was completed during the first quarter and a manufacturing facility in Mexico was also brought back online during the first quarter.

As a result of the prior items including the noncash derivative expenses and the non-recurring one-time repayment to the OCS, net loss for the three months increased $17 million to $43 million, and for the six months net loss increased $90 million to $160 million in comparison to the 2014 period.

In addition, we continue to invest in our R&D programs, and as such R&D expense increased for the three months ended June 30, 2015 by $13.3 million to $29.6 million and R&D expense for the six months ended June 30 increased by $17.8 million to $55.1 million.

I would now like to turn the call over to Jane Hsiao, our Vice Chairman and CTO. Jane?

Thank you, Adam. I have pleasure of working with the OPKO biologics team since the acquisition. I would say that I'm very proud to say OPKO biologics based in Israel is an extremely productive team. The team is working tirelessly to apply the proprietary technologies to extend the half-lives of therapeutic peptides and proteins. The most advanced program is the once a week injection instead of once daily recombinant human growth hormone product.

Since the beginning of this year the partnership with Pfizer has given this project a boost in building commercial success. We have extended experience the resources from Pfizer and we expect to have very favorable cost of goods structure.

We have completed enrolment of the pivotal Phase III study for the treatment of growth hormone deficiency in adult patients. We plan to file the biological license application as soon as the data clean-up and compilation can be completed.

All 52 eligible patients have completed the 12-month mandatory treatment period of the Phase II pediatric dose ranging study and of that over 90% of the patients have elected to continue receiving the treatment in the open label phase of the trial. Some patients even gone into the second year of treatment.

OPKO and Pfizer teams are working together to develop the optimum global regulatory strategies for the US, Eastern and Western Europe and Asia Pacific countries. Recently, we also consulted with PMDA to discuss registration requirements for Japan which host about one-third of the total market and has its own unique regulatory pathway. We expect our strong long-term Phase II data in pediatric growth hormone deficiency patients will facilitate the development timeline in Japan.

The second program is the long-acting Factor VIIA. This is a recombinant product using the same CPT technology as that for the growth hormone product to extend the half-life of Factor VIIA. Some hemophilia patients, A or B patients, who have developed antibodies to the effect of replacement therapy and become unresponsive are treated with Factor VIIA which is dominated by Novo Nordisk NovoSeven product. The reported market size of this product is $1.2 billion to $1.6 billion a year.

Our product, MOD-5014 studied side-by-side to NovoSeven has shown the potential in animal model studies for an on-demand and prophylactic use by IV and more importantly by sub-cu. In June, five posters were accepted and presented at the International Society of Thrombosis and Hemostasis Annual Meeting in Toronto, Canada. We presented the clinical toxicology, pharmacokinetic and pharmacology with comprehensive assessment of the safety and efficacy of our product in animals. This data set is the basis of the FDA-approved IND to support a first in-human trial of this product. We expect to dose the first patient as a Phase IIA dose escalating study as soon as the necessary RB approval and external laboratory service contracts are in place.

Another product which is almost ready for first clinical study is the long-acting Oxyntomodulin. Oxyntomodulin is a peptide hormone released from the gut after a meal. It activates both the glycogen like peptide 1, and the glucagon receptors and is known to reduce the food intake and to increase energy consumption for an effective weight loss control.

The half-life nature of oxyntomodulin is in minutes while OPKO has modified a long-acting product can be administered once a week. Studies in diabetic overweight mice have demonstrated better weight loss than the major hormone itself. We are completing the necessary toxicology and pharmacokinetic studies in animals, and the first in-human study has been planned. Thank you. Now Charlie.

Thanks, Jane. Good afternoon. I'm pleased to update you on the Renal Division's progress in bringing Rayaldee to the US market. OPKO submitted the new drug application for calcifediol modified release capsules to the FDA on May 29. The proposed trade name for this product is Rayaldee.

In the NDA, we requested FDA approval of Rayaldee for the prevention and treatment of secondary hyperparathyroidism in patients with stage III or IV chronic kidney disease and Vitamin D insufficiency. Our application is supported by data from three randomized double-blind placebo-controlled studies, and one open label extension study conducted in the targeted patient population. The two pivotal studies [were covered] by a special protocol assessment established in advance. They met all primary efficacy and safety endpoints.

The agency informed us by telephone on July 28 that the NDA was sufficiently complete for review and that it had been filed. We expect to receive a written notification of NDA acceptance along with a PDUFA date in the forthcoming 74-day letter. We anticipate receiving this letter by mid-August.

Our next milestone with the FDA is the submission of a 120-day safety update due on September 25. During the course of FDA review of the NDA, we are undertaking efforts to prepare for our product launch in the first half of 2016. Our plans, of course, will be continually adjusted in accordance with any comments received from the agency, and the forthcoming PDUFA date. Assuming that the NDA is approved, OPKO will launch the product in the US with our own dedicated sales force targeting nephrologists and endocrinologists to care for patients with stage III or IV chronic kidney disease.

Before I pass the teleconference over to David Okrongly, I'd like to briefly mention that we are now discussing a final global Phase III trial with Pharma Gate our calcium-free phosphate binder. The design of this trial will be further discussed with FDA and with selected European regulatory authorities with the goal of finalizing a steady protocol in the first half of 2016. The initiation of the trial is planned to follow as soon as possible thereafter. David?

Thank you, Charlie. I'm going to give an update now on the Diagnostics Division of OPKO Health, and I'll break it down into two categories. First I'll give you an update on the 4Kscore, our test for predicting the risk of aggressive prostate cancer, and then I'll conclude with the Claros update which is our finger stick whole blood point of care analyzer.

So in July, the 4Kscore test achieved a major milestone when the 4Kscore test was included in the 2015 National Comprehensive Cancer Network Guidelines for prostate cancer early detection. The NCCN Guidelines represent a transition phase for the 4Kscore test in that it is now included in one of the leading guidelines directing physicians on how to manage early detection of prostate cancer.

Also very notable in the National Comprehensive Cancer Guidelines Update is a shifting emphasis on the detection of aggressive cancer. It's now very clearly being recognized that we want to develop biomarker tests that will allow us to sort out the aggressive form of prostate cancer and leave behind men who have indolent forms of cancer or have no cancer at all. And that plays perfectly to the message and the validation that's been conducted on the 4Kscore test over the last ten years and is now represented in 12 peer review publications on over 22,000 patients.

Importantly in that guideline update by NCCN, the 4Kscore test is now indicated as being appropriate before both a first prostate biopsy, that is a biopsy that might be conducted after a PSA is tested and found to be elevated. It's also indicated for use in the repeat biopsy setting. This would be for a patient who's been found to have no cancer, no prostate cancer on an initial biopsy but may still have other clinical symptoms such as elevated PSA or a digital rectal exam that's abnormal.

Also important in the guidelines was the highlighted superior performance of the 4Kscore test for aggressive disease. The review panel clearly reviewed and acknowledged the performance of the 4Kscore test in aggressive prostate cancer.

We're very excited about this development and it's further buoyed our efforts to pursue reimbursement as well as a category one CPT code. The administrative code is a code that we currently have for the 4Kscore test, and this became active on July 1, and shortly thereafter we began billing both Medicare and private insurance for the 4Kscore test.

A category one CPT code would catapult us up to the very highest level of CPT code and medical evidence. That application on July 15 will be reviewed by the AMA CPT editorial board in October, and we expect to have a favorable review of that finalized by the beginning part of 2016. As I mentioned, we've been billing Medicare and private insurance now for several weeks in four of our current territories, and that billing program is still in its very early days and I do not have any feedback for you on that just yet.

What I also would like to point out is that we, as part of our ongoing efforts to seek reimbursement with both Medicare and private insurance, are conducting a clinical utility study looking at how the 4Kscore test has changed clinician behavior. The physicians that we're interviewing are physicians who have treated approximately 400 patients, and used the 4Kscore test to make a treatment decision. And we believe that that evidence is going to show very favorably that the 4Kscore test is influencing clinician behavior and thus will achieve the targeted savings that the 4Kscore test can show in managing patients with elevated PSA or an abnormal DRE.

I'll give an update also on where we are at with BRL, the Bio Reference Laboratory. This acquisition should be closing in the next couple of weeks and will allow the 4Kscore test to now take advantage of the tremendous capabilities within the Bio Reference Laboratory for both access to blood draw centers where patients can be sent by their urologists or primary care physicians, get their blood drawn, and then have that sample transported directly to the Bio Reference Laboratory facility in Elmwood Park, New Jersey.

We also have a great advantage in that the Bio Reference contracts they have with virtually every major private insurance company across the United States will now be put under contract for the 4Kscore test and our other pathology services. And vice versa, we can use the contracts that OPKO has that are important to BRL, particularly in Tennessee and also a national coverage contract, and they can be listed as a place of service under that contract. So that's one of the very important integration activities that's going on now and we will be moving towards the informing of our private insurance contractors coming up in the next couple of weeks.

I'm going to conclude the diagnostics summary with an update on Claros. As you know we are developing the PSA and testosterone diagnostic test for clinical trials, and that continues according to the timelines we've previously announced. We're looking to do a 510K filing on testosterone in the first half of 2016, and to have a PSA filing beginning also in the first half of 2016.

Clinical development of testosterone, which is an assay that requires a release step of the testosterone from a binding protein in the blood, is a prelude for our vitamin D product that we are still looking to have available in time for the Rayaldee launch and reimbursement decisions that are going to be coming up for Rayaldee. So we expect to be able to have the testosterone cassette to be able to be used for Rayaldee, and be ready to support Rayaldee when it's under coverage by insurance companies.

With that I'll conclude the remarks for diagnostics and I'll turn it over to Phillip Frost, our Chairman and CEO at OPKO Health.

Thank you, David. Well, you've heard a review of the various parts of the Company and its activities during the last quarter and first half. I'd like to highlight another acquisition that we made during this period and that's the EirGen company in Ireland. This is a company that was founded several years ago by a very talented group who worked for us at IVAX. They were talented with respect to formulation ability, manufacturing, quality, and regulatory affairs, all the ingredients needed for a successful company.

They also had a superb strategy and this was to focus on products that are considered high potency. The consequence of this is that among those products there tends to be very few players with each one. This means that for a high potency generic product, because there are fewer companies selling them, there's less competition and the margins tend to be higher.

So this strategy is a way of achieving higher margins and profits by concentrating on a smaller group of products that we can both develop and manufacture in Ireland. I stress this because Ireland turns out to be a very, very good place to concentrate one's efforts. It's important because the government essentially pays for the R&D work going on there, and secondly, we as others, enjoy a very low tax rate in Ireland. So we plan to make this an area of future concentration so far as our development in manufacturing activities are concerned.

I'll close by simply stating that in future quarters we hope to, on an ongoing basis, report better financial results, and I'll leave it there to lead into any questions that you might have.

(Operator Instructions). Rohit Vanjani with Oppenheimer.

Hi everybody. Thanks for taking the questions. So I'm not sure, this might be for Jane, but a couple of weeks back you provided updated guidance on Lagova in the adult indication noting that the study is expected to end towards the second half of 2016, and then with a regulatory submission to follow study completion. I would think the potential launch would happen in the second half '17 or early 2018. I guess I always thought of the adult indication being launched in 2016 with the pediatric launch in 2018. What changed there for the timeline?

Well, with the collaboration with Pfizer, it's very important for us to look at the market opportunities and with that in mind, that we look at how best to introduce the product. So from that point of view, we are already thinking ahead about introducing the Pen and things like that. That will be one of the considerations.

And another thing is the original enrolment for the Phase III adult study, it was a challenge. We actually pulled through and just completing the early enrolment just recently. So based on finishing 12 month study from the last patient enrolled to having the data clean-up and preparing the BLA submission, indeed yes, we are behind from our original projection.

Okay. And the pediatric indication, are you still planning to launch that for 2018? So they will be together side by side?

No, the pediatric study we are looking to -- we are still talking to the regulatory authorities so that protocol won't be finalized until maybe the best will be the beginning of next year, so once we have the protocol, that's really getting all the study sites online and getting the study to initiate, so we're looking at maybe more of a -- not a 2018 timeline, more like a 2019 timeline.

Okay. And how long will the study take? I'm sorry, so the protocol will be finalized the beginning first half '16 and the study will start then. It's a two-year study?

Basically it's a one-year study, and as you know, the enrolment itself will take somewhere from 12 to 18 months for a pivotal study. Because it is often indication and each side basically can only produce a couple of each patient that qualifies to enter into the trial, so that unlike the other indications, this is a particularly challenging and we have to have many, many, many sites to first qualify and get them signed up. So even though we want to do it faster, but unfortunately that's not the case even though we will try our best.

I should've have said that. I meant a two-year timeline for the study, including enrolment -- including enrolment. Yes, I'm sorry. And so do you see the launch of Lagova of being in line with some of the other anticipated competitive products should they get approval, or is it kind of now behind maybe some of those other competitors?

I think from the data we have seen with our competitors, we have the most comprehensive long-term safety and efficacy data. So I'm very comfortable what we have and I think at the end of the day this product should be pretty good -- should be very competitive.

And then I know it's still fairly early and well ahead of the Lagova launch, but what does it mean to you if anything that only Lilly's Humatrope and Novo Nordisk Norditropin were left on CVS's preferred formulary for 2016, and only Nutropin, Omnitrope, Phazyme and Sumactin were left on ExpressScripts preferred formulary for 2016, and the Pfizer product was left off, I guess.

I really cannot comment on that, not on this side of the commercial. Sorry.

Okay. And then Dave, for Claros1, just wanted to be clear about the timeline. So it's first half '16 launch of testosterone and PSA, and then when would the Vitamin D potentially launch?

Sorry, Rohit, first half is going to be our filing date for testosterone for both PSA and for testosterone.

Okay. And then it would be a three-month timeline from that filing?

That's hard to predict but we assume three to six months, typically, with the filing for a diagnostic.

Okay. So launch may be second half '16, and then for Vitamin D, I'm sorry?

For Vitamin D, we're really looking to -- we're going to learn from testosterone exactly how to do the Vitamin D. We think that there's great value in the cassette -- the special cassette for testosterone. We would look to do that filing by the end of 2016, and that would kind of line us up with when Rayaldee -- we expect Rayaldee to be on the formulary.

Okay. And it's the same three to six months maybe anticipated filing timeline. I know there's a little bit (multiple speakers)

These should go a little bit quicker once the first one goes through, and Vitamin D is a straightforward 510(k) so I would be looking -- I would be expecting more the three month timeframe there.

Okay.

David, this is Jane. I have a different estimate as you do in terms of FDA review time, three to six months. Bear in mind this Claros1, this device itself is the first time presented to FDA. My personal opinion it's going to take longer than three to six months.

Okay. And this might be for Adam, so in the S4, the BRLI documents you provided, management's revenue projections for 2015 to 2019, what's included in that 2016 to 2018 timeframe for Lagova if the adult and pediatric indications got pushed out?

So really you would imagine for Lagova we are projecting kind of in connection with the timelines that Jane had just walked through.

So whatever those projections were in that S4, maybe some of that would have to come out because that had the original anticipated --

Yes, I think it had the revised or updated timelines in it already.

Okay. So those projections are still accurate.

Yes. As we disclosed, they're not necessarily risk-adjusted or probability-adjusted, but yes.

Okay. And then Dave, yes, just going back to Dave, I'm sorry, for 4Kscore, what would that mean -- how many territories are you in, first of all? You said that you begin billing to four territories. How many total territories are you in and have you been paid in the couple of weeks that you've billed?

Well, I think what we're going to do, Rohit, is just withhold discussion about the payment yet because it's still a very early stage and we're having these discussions actively right now. The four territories that we're billing in are four of the twelve territories. We look to the United States, though, as really requiring about 25 different sales reps.

So we're representative in just a very small portion right now of the country with our billing. But I will say that the physicians that we're working with are very excited about the fact that they can now offer this to their patients with the expectation that reimbursement is going to be on the horizon, and they're very, very happy to partner with us on pursuing the reimbursement should those rejections come.

And then just my last question, what would that mean kind of practically if you get that category one, when did you say, in October is when they're going to determine that?

Yes. So what the process is it's fairly long, but it's kind of an essential follow-on to our administrative code. So the review process is October for final decision by the AMA CPT Editorial Board. The code -- we would get approval or we would get indications that it's been approved some time in December or January, and then that would become active in 2017.

That is about the same time that other regulations come into play or other law comes into play which is PAMA. We don't know if PAMA's going to be delayed or not, but that also sort of makes these advanced laboratory diagnostic tests like the 4Kscore test kind of fall under an automatic payment for Medicare, and then it will be adjusted down the road by what the private payers are paying for it.

So we wanted to do this because we think it's an important designation. It puts it up there in a standard of care kind of categorization. It's not essential though to get paid for the test.

Okay. So sorry, just to be clear, so if it's an automatic payment from Medicare, it would almost be a virtual automatic from private too. It's just kind of whatever the negotiated rate is.

Yes. There's nothing automatic about this, but typically category one CPT codes would be paid by Medicare. But we expect that we're going to get paid by Medicare even without having the category one. It's just that it's something that we now have the guidelines evidenced to put in there and we also have gotten additional publications supporting the use of the test. So we think it actually quite exceeds the requirements for a category one.

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

(Operator Instructions). Kevin DeGeeter with Ladenburg.

Good afternoon. A few questions. Let's go ahead and get Charlie in here. Charlie, do you expect there to be an FDA Advisory Panel meeting for Rayaldee?

Hi Kevin. No, I don't. To date, to the best of my knowledge, FDA has not used an advisory panel for a drug that's in the Vitamin D pharmacology class.

Terrific. And with regard to pre-commercialization, when should we look for the initial hiring of a sales force and perhaps some pharmaco-economic studies being published and other relatively standard pre-commercialization activity?

You'll see activities like these all through the NDA review. We'll start our hiring of the sales force effort in Q4. I expect that sales reps will be employed in the beginning of Q1. Publications you're going to see coming out over the entire period, and of course, after approval, should we be approved.

Okay, great. And just kind of returning to Lagova for a moment, as we think about the timelines discussed for the pediatric Phase III and potential approval, does this planning process allow for the transition of the manufacturing over to Pfizer prior to initiation of the Phase III, or do you anticipate using material from the OPKO Israel facilities and protocols, then subsequently bridging to Pfizer following the Phase III?

Well, Kevin, as we speak, this transition process is ongoing from day one of the collaboration.

So your anticipation at this point is for the pediatric study that we will be able to use product manufactured at the Pfizer facility and thus not need to do a bridging, is that correct?

No. There will still be bridging because our Phase II is from different side.

Okay. That's helpful. And then just with regard to the Factor VII program, when is a realistic timeline to provide -- to get an update with regard to just pharmacokinetics for that product?

You are talking about clinical trial?

Clinical trial, yes.

Well, we have the IND approved. We expect the first in-patient, as I mentioned, we are waiting and working on setting the ROV approval and the laboratory contract in place. So we're looking in the next few months' time.

Okay, great. And then maybe just one more with regard to -- for Dave on the Claros platform. Can you just kind of walk us through from a development standpoint what the gating factors for the Vitamin D tests sort of are at this point? Is it more sort of a regulatory component of getting the testosterone cassette through FDA as part of the initial review? Are there technical considerations with regard to the time to deal with the binding protein that still need to be addressed?

Vitamin D is a challenging test for all manufacturers and testosterone is really our entree into this world of immunodiagnostics that require release steps. And with the bandwidth we have here in development, we've really focused on testosterone to get that right. And then we're going to have resources that are freed up to now take what we've learned about the testosterone program and apply it to Vitamin D. I think a successful testosterone program bodes very well for Vitamin D.

Okay, great. I appreciate the clarity. Thanks so much.

And this concludes the Q&A section of our call. I'd now like to turn the call back to Dr. Frost for closing remarks.

I just want to thank you all for attending and participating, and we look forward to being together with you in a few months. Bye now.

This concludes today's call. We thank you for your participation.