OPKO Health Inc (OPK) 2016 Q1 法說會逐字稿

Welcome to the OPKO Health conference call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we'll hold a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded May 9, 2016. I would now like to turn the call over to Anne Marie Fields. Please go ahead ma'am.

Thank you. Good afternoon, this Anne Marie Fields with LHA. Thank you all for joining today's call. 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 the Company's expected results including without limitation the various risks described in the Company's annual report on Form 10-K for the year ended December 31, 2015 and its subsequent filings with the SEC.

Before we begin, let me review the format for today's call. Dr. Phillip Frost, Chairman and Chief Executive Officer of OPKO will provide brief opening remarks followed by Steven Rubin, OPKO's Executive Vice President will provide an update on the Company's various businesses and clinical programs followed by Adam Logal, Chief Financial Officer who will provide an overview of the Company's financial performance during the first quarter of 2016. We will then open the call for questions after which Dr. Frost will conclude the call with his closing remarks. Now, I'd like to turn the call to Dr. Philip Frost. Dr. Frost?

Yes, good afternoon. First of all, I'd like to thank you all for participating and I will just say that today's announcement about our new agreement with a tremendous group that is the Vifor Fresenius joint venture to market our RAYALDEE product outside the United States in certain places and also to develop with us a another dosage form, which will be useful for dialysis patients is really very satisfying because it's a result of a lot of discussion and negotiating and we are pleased because this is a group that are truly expert in dealing with patients with kidney diseases, probably one of the premier groups in this particular disease area. So we're very satisfied. And again, for me, it's one of the great pleasures to get to know the different experts in certain areas. In that regard, I'll mention that it's been an absolute pleasure dealing with the Pfizer team who are our partners with the growth hormone project as you know. And as we are sitting here, it would not be surprising to you to understand in any point in time, we're talking to many groups and I think all of us here are happy to say that we're blessed by having the opportunity to have these great associations. So without further discussion, I'll pass you on to Steve who will update you on the events of the quarter.

Thanks, Phil and thank you all for joining us this afternoon. We entered 2016 with strong momentum following a transformative second half of 2015. The first quarter has been highly productive. During today's call, I'll provide an overview of our progress in therapeutics, diagnostics, biologics, and certain partnered programs before turning the call over to Adam Logal, our CFO for a detailed discussion of our financial performance.

Let me begin with an update on RAYALDEE. We announced some exciting news this morning about our new collaboration with Vifor Fresenius for the development and commercialization of RAYALDEE in Europe, Canada and certain other international markets for the treatment of secondary hyperparathyroidism in patients with stage 3 and 4 chronic kidney disease and vitamin D insufficiency.

Vifor Fresenius is a leader in chronic kidney disease therapy and we believe they are the ideal partner to bring RAYALDEE to patients across Europe and elsewhere. Under the terms of the agreement, we will also collaborate to develop and commercialize a different dosage form of RAYALDEE for the treatment of secondary hyperparathyroidism in dialysis patients for end stage or stage 5 renal disease. And we have granted to Vifor Fresenius an option to acquire rights to the US market for this indication.

The financial terms of the deal provide that Vifor Fresenius will make an upfront payment of $50 million plus up to an additional $232 million of regulatory and sales-based milestones as well as tiered double-digit royalties on net sales. If Vifor Fresenius exercises the option for the US dialysis market, they will pay OPKO up to an additional $555 million in commercial milestones as well as double-digit royalties on net sales.

Turning to the regulatory status of RAYALDEE. As you know, in 2015, we submitted the NDA for RAYALDEE to the FDA. On March 29, our PDUFA date, the FDA indicated in a Complete Response Letter that because of deficiencies at our third-party contract manufacturer, our drug could not yet be approved. It is important to note that the observations were not specific to RAYALDEE manufacturing and the letter from the FDA did not cite any safety, efficacy, or labeling issues with regard to RAYALDEE nor did it request any additional studies to be conducted prior to FDA approval.

The third-party manufacturer submitted its action plan to remedy the deficiencies as planned on April 15. We subsequently resubmitted our NDA to the FDA and the FDA accepted the re-submission as complete on April 22 and assigned a new PDUFA date of October 22, 2016.

As our commercial plans for RAYALDEE have always called for a launch in the second half of 2016, we do not believe this event will delay those plans. In the meantime, we are advancing our pre-launch activities. We are delighted to appoint Jim DeMarco as Senior Vice President of Pharmaceutical Sales to support the launch of RAYALDEE. Under his supervision, we continue meeting with payers and are developing pricing and reimbursement strategies.

We are continuing to build out our senior commercial leadership team and you can expect to hear of other key hires in the very near future. We have a strong body of clinical evidence showing that RAYALDEE can safely and reliably raise serum total 25-hydroxyvitamin D in stage 3 and 4 chronic kidney disease patients. Indeed our Phase 3 clinical data with RAYALDEE indicated that the level of 25-hydroxyvitamin D required by these patients is substantially higher for stage 3 and 4 chronic kidney disease. These data are consistent with recent public presentations and publications that point in the same conclusion.

I note that there are no currently available products that can reliably raise 25-hydroxyvitamin D level in patients with stage 3 or 4 chronic kidney disease to the levels required for superior control of secondary hyperparathyroidism. The US market opportunity for RAYALDEE exceeds $12 billion and there is also a significant global market opportunity. Consequently, we are very pleased with this co-development and commercialization agreement with Vifor Fresenius.

Turning now to our diagnostic segment. Our strong performance in the first quarter continues to validate the rationale for last year's acquisition of Bio-Reference Labs. Let me begin by highlighting our new president of Bio-Reference Labs, Dr. Greg Henderson. Dr. Henderson joined us on March 15 and brings to us the ideal combination of technical expertise, entrepreneurial, and management expertise. We are confident his leadership will accelerate growth of our core traditional and genetic testing services as well as our important new products such as our 4Kscore Test for prostate cancer. As you know, 4Kscore is the only blood test that accurately identifies an individual patient's risk for aggressive prostate cancer.

We've made great strides in several key areas important to the successful marketing of our 4Kscore Test. In addition to being included in the recommendation. In addition to being included in the recommendations from the US National Comprehensive Cancer Network Guidelines for Prostate Cancer early detection last fall, in March, the European Association of Urology Prostate Cancer Guidelines Panel included 4Kscore in their 2016 EAU Guidelines for Prostate Cancer. The panel concluded that the 4Kscore has a blood test with greater specificity over the PSA test, is indicated for use prior to a first prostate biopsy or after a negative biopsy to assist patients and physicians in further defining the probability of high-grade cancer.

Last November, the American Medical Association granted a CPT I code for 4Kscore which will be published this August to be effective January 1, 2017. In the meantime, we've had a number of positive payer meetings and we continue to work with insurers to obtain broad coverage. To support both adoption and reimbursement, the results of a clinical utility study demonstrating the ability of 4Kscore reduce the number of prostate biopsies performed while increasing the probability of detecting aggressive prostate cancer in men with abnormal PSA levels or digital rectal exam results was published in the January 2016 edition of the peer-review journal Reviews in Urology.

This study included 611 patients seen by 35 academic and community urologists across the US and indicated that consideration of results from the 4Kscore tests led to almost 65% fewer prostate biopsies being performed among participating patients. This combination of clinical and reimbursement progress continues to support our efforts as we rollout the 4Kscore test with approximately 200 Bio-Reference Labs sales reps to both urologists and primary care physicians. The results have been dramatic, as we've seen approximately double-digit percentage volume growth every month from the time we expanded our original 10% sales force to 200% Bio-Reference Lab's team. In April alone, we performed over 4,600 4Kscore tests. We also made significant progress with GeneDx, our higher margin genetic testing business.

Our GeneDx unit had a very strong showing at the recent American College of Medical Genetics and Genomics Annual Meeting with a 11 papers presented covering a range of topics from inherited cancers to a Whole Exome Sequencing. Over the last several years, GeneDx has also been striving to better understand the genetic causes of autism and intellectual disability through research and the robust Whole Exome Sequencing program. Based on this increased understanding and knowledge, GeneDx was excited to launch its Autism Intellectual Disability Expanded panel. This is a dynamic testing panel analyzing approximately 2,000 genes that have been associated with autism, intellectual disability, or developmental delay.

Regarding our Claros 1 point-of-care system, we continue to progress our plans to commercialize this novel diagnostic system to provide rapid high-performance blood test results at the point-of-care. With a single drop of blood, Claros 1 can run tests in a physician's office or hospital nurse's station avoiding the use of a centralized reference laboratory for these tests. We expect to initiate and complete clinical trials for both PSA and testosterone utilizing the Claros 1 system later this year. Upon FDA clearance, we expect to fully leverage Bio-Reference Labs marketing, sales, and distribution resources to the launch of Claros diagnostic test in the US.

We are also developing tests for TSH and vitamin D, but there are many more applications for the technology including infectious disease, cardiology, women's health, and companion diagnostics.

During the first quarter, we made meaningful progress advancing the development programs for certain of our biologic products, specifically our long-acting forms of Factor VIIa, human growth hormone in oxyntomodulin. Let me start with our long-acting version of coagulation Factor VIIa. In February, we initiated a Phase 2a dose escalation study to determine safety and explore efficacy endpoints in patients with our long-acting Factor VII CTP in the treatment of bleeding episodes in hemophilia A or B patients with inhibitors to Factor VIII or Factor IX.

This study is intended to enroll 24 patients in the United States. Depending upon enrollment rates, we expect to have interim data by year-end from this trial. We already have FDA and European orphan drug designations for Factor VIIa-CTP for this indication. Current treatment options with Factor VII require multiple IV infusions to treat bleeding episodes because of its short half-life. Also, frequent IV infusions are onerous when used as preventive prophylactic therapy especially for children.

MOD-6031 is our long-acting subcutaneous oxyntomodulin, which is a natural appetite suppressor for the treatment of obesity and type 2 diabetes. In March, we are pleased to dose the first subject in a Phase 1 single dose escalation study evaluating the safety and pharmacokinetics of MOD-6031 healthy, overweight, or obese subjects. The study is intended to enroll 40 subjects and depending on enrollment rates, we expect to have topline data by year-end. Pre-clinical animal data showed that our compound reduced food consumption and body weight and led to improvements in glycemic control lipid profile.

Pharmacokinetic studies showed an extended kinetic profile in comparison to native oxyntomodulin and we believe oxyntomodulin has the potential to be a safe, long-term therapy for obesity and type 2 diabetes, each of which represent a significant (technical difficulty) opportunity. More than 380 million people are living with diabetes worldwide, of whom approximately 90% have type 2 diabetes. According to the World Health Organization, there are more than 500 million severely overweight or obese people in the world.

As a final topic of discussion, let me turn to our partner products beginning with VARUBI. Our partner TESARO commercially launched VARUBI in the US last November for the treatment of chemotherapy induced nausea and vomiting and we understand that the launch has progressed well. In accordance with our agreement, we are eligible to receive milestone payments of up to $30 million upon achievement of certain regulatory and commercial sales milestones, of which $20 million has been received to date. An additional commercial milestone payments of up to $85 million, if specified levels of annual net sales are achieved. In addition, there are tiered double-digit royalties on net sales in the United States and the European Union. TESARO remains committed to expanding access to VARUBI for cancer patients suffering with CINV. They submitted an NDA with the FDA for an intravenous version of VARUBI in March. Also in March, they submitted an application for marketing authorization in Europe for oral VARUBI.

During the first quarter, we made excellent progress advancing the development program for our long-acting human growth hormone product hGH-CTP which is partnered worldwide with Pfizer. Enrollment in a global Phase 3 clinical trial in adults was completed in late June. Topline data readout is expected before the end of 2016. These forthcoming data are expected to support registration in the EU and the United States. Last month, we reported 18 month to 24 month clinical data from our ongoing open label extension study of the Phase 2 pediatric study for hGH-CTP in a podium presentation at the Endocrine Society annual meeting. That study is a continuation of our Phase 2 one-year dose finding study in which 53 naive growth hormone deficient children received one of three doses of hGH-CTP once weekly or daily Genotropin as a comparator. The published 12-month data from the Phase 2 study confirmed comparable responses to once weekly hGH-CTP and daily Genotropin as reflected by the safety, efficacy, and pharmacodynamic profiles. Based on the promising Phase 2 pediatric clinical data, we plan to initiate a global pivotal Phase 3 study in prepubertal growth hormone deficient children later this year. Our agreement with Pfizer is worth a total of $570 million in milestone payments plus royalties which we have so far received $295 million.

In conclusion, this year has gotten off to a strong start. We are continuing with our pre-launch plans for RAYALDEE, we have a terrific new partner in Vifor Fresenius to expand the commercialization of RAYALDEE beyond the US markets and beyond its initial therapeutic indication of stage 3 and 4 chronic kidney disease. Throughout 2016, we expect to achieve a number of value creating milestones as we continue to increase revenue from Bio-Reference Labs and enhance the commercialization of 4Kscore with over 200 sales people. Advancing the clinical progress for Claros, making progress with our multiple clinical programs are underway including reporting data from our Phase 3 trial of our long-acting human growth hormone and initiating a global Phase 3 pediatric study. Before turning the call over to Adam for review of our financial performance, I'd like to note that we will be holding an Analyst Day event in New York City on June 15 beginning at 4:30 PM. We expect to have key opinion leaders in molecular diagnostics and chronic kidney disease as well as our entire management team to review our progress and plans moving forward. We look forward to hosting this interesting and informative event. We're going to limit in-person attendance to analysts and institutional investors, but the entire event will be webcast both live and archived, so we encourage everyone else to listen in via the Internet. Adam?

Thank you, Steve and good afternoon everyone. During the quarter ended March 31, 2016, we saw a significant improvement for financial performance compared to the 2015 period. Revenue increased to $291 million from $30 million principally driven by revenue from Bio-Reference of approximately $251 million. Operating loss for the quarter was $27.5 million compared to $56.9 million for the 2015 period. Operating loss during 2016 includes approximately $17.2 million related to payments to Bio-Reference executives including $8.9 million of non-cash expense related to the acceleration of their stock options.

Impacting the 2015 period was $25.9 million non-recurring charge related to the repayment of a grant in Israel as a result of the Pfizer transaction. The acquisitions of EirGen and Bio-Reference are the most significant impacts on the comparability of our results between the two periods. Net loss for the three months ended March 31, 2016 decreased to $12 million from $117 million for the comparable period of 2015. Net loss in the 2016 period benefited from an income tax rate change in Israel. The 2015 period included a non-cash $53 million charge related to the mark-to-market activity of embedded derivatives of our convertible debt. Our balance sheet remained strong with approximately $175 million in cash and cash equivalents, plus the cash [we'll receive] as part of the upfront payment from our collaboration agreement for RAYALDEE and the availability under our credit facility. I would like now to turn the call back to Dr. Frost. Phil?

Thank you. Now we will be open to questions if there are any.

(Operator Instructions) Dana Flanders, JPMorgan.

Thanks for the questions and congratulations on the deal. My first question is on the Vifor deal, can you just remind us, what is the process to move RAYALDEE forward in these ex-US markets and get approval. Just what are the timelines there and then how should we be thinking about ex-US market size for RAYALDEE relative to the US and then I have a few follow-ups.

Hi, Dana, it's Charlie Bishop. The timeline for moving RAYALDEE into approval in Europe is basically submitting an MAA to EMA, which is our plan in the first half of 2017. That would put us in a position to be approved sometime approximately a year later with the launch following as soon as possible thereafter.

With regard to the size of the market, our chronic kidney disease is pretty agnostic to cultures and races across the world. In the United States, blacks and Hispanics seem to be mostly affected and that's true across other countries as well. So you can just look at the proportions of populations recognizing that there are some differences in how country's treat end stage renal disease or chronic kidney disease.

And my next question, just on the development in dialysis patients. Is the costs there, I guess split 50-50 with your partner and just where are you on the development of that currently?

So to answer, the cost will be split 50-50 and as far as the progress for developing, we are just beginning.

And then just my last one here and then I'll hop back in the queue, just on the 4Kscore reimbursement, I believe you are expecting a CMS decision in June. Can you just walk us through the different potential outcomes there and can you remind us, is this is a decision on access and price or does the price negotiations still just come at a later date. Thank you.

Hi, this is Dave Okrongly. So we're working right now with a group called MolDX, this is a group run out of Palmetto and that is going to be used as hopefully a way to get a third-party who is used to looking at novel molecular and advanced diagnostic tests to allow then our Medicare administrator Novitas to give a local coverage decision and then based on the pricing we're seeing, which is quite good from the private insurance companies that are paying today to use that pricing information to set a price with Novitas. So it's still a couple of steps in the process, but we're making great progress on it.

Brandon Couillard, Jefferies.

Just back on 4Q score, could you give us a sense of sort of in the context of the volume run rate that you gave us for April, what proportion of that is coming from the GP community base i.e., I guess the Bio-Reference incremental uptake and any color coming out of the AUA meeting this week?

Approximately half of the tests are coming from the Bio-Reference reflex type of situation of which an elevated PSA automatically gets a 4Kscore done on it because the precision requesting the PSA has indicated that if it is elevated, he would like to have the 4K. We have had tremendous reports back from the meeting out in California. We understand that our booth was swamped for most of the time and that there was great interest not only at the booth, but we had several presentations and private meetings and [vendors] all of which attracted great audiences. So we are feeling as though it is on a very good track and this was the first meeting in which the Bio-Reference team participated and they certainly added a lot to the picture.

Jumping over to Claros. Steve, anymore granularity you can give us on the exact timeline or dates when you expect to actually submit the first two, I guess, tests for that platform?

We're looking to submit those tests, the PSA and the testosterone towards the end of this year or early next year and regulatory approval in 2017.

And then lastly for Adam. Could you give us the operating cash flow figure for the first quarter. It looked like the net cash balance declined a little bit sequentially and then any more insight you can give us in terms of the sequential jump in SG&A. I mean, even excluding the severance related payments to Bio-Reference, still looks like a sizable sequential uptick. Anything you can help us on there and then in terms of the outlook for the year, ballpark numbers in terms of OpEx?

Sure, so with operating cash flow, we used about $9.2 million from operations for the quarter, which is a pretty good result for us. As far as the increase in SG&A costs, those are -- we mentioned the severance related costs, but there's not anything else individually that stands out, Brandon to call out and I do think from a run rate perspective on the cost of revenue, R&D and SG&A lines I think excluding some of those one-time costs that we called out, those should be pretty good run rates to continue to think about.

Yale Jen, Laidlaw & Company.

Could you give us a little bit breakdown for the topline revenue between the Bio-Reference Lab and other aspects?

Sure, in my remarks, I mentioned that we had about $251 million in revenue from Bio-Reference. Revenue from our products, which consist of our pharmaceuticals we're selling abroad were just below $20 million, $19.9 million and then revenue from our transfer of intellectual property was approximately $18.6 million.

And another question is that in terms going forward, if you want use RAYALDEE for dialysis patients, how would you see any differences or similarity to that in terms of the chronic kidney disease patient in terms of any special needs or in terms of child [desire] or any other aspects and thanks for taking the questions.

Hi Yale, this is Charlie. The pre-dialysis patients or more specifically those patients who have CKD stages 3 or 4. They will be treated with RAYALDEE on a daily basis whereas hemodialysis patients will be treated three times per week. That being the case, the dose to be delivered to hemodialysis patients will be higher. Also, it's known that secondary hyperparathyroidism as it progresses requires usually higher and higher doses of agents to effectively control elevated PTH. So given that stage 5 for hemodialysis patients have more advanced secondary hyperparathyroidism, we expect that the dose will be even higher.

Kevin DeGeeter, Ladenburg.

Couple of questions following-up I guess with regard to RAYALDEE and potential development in the dialysis setting. Charlie can you comment on sort of the target patient population for RAYALDEE in light of the other vitamin D analogs with approved indications for dialysis, some of which will likely be generic by the time RAYALDEE were to enter the dialysis market.

RAYALDEE will be unique as a treatment for dialysis patients in medicine oral only drug and as you well understand, oral only drugs are excluded from the US dialysis bundle. That would mean that RAYALDEE, should it stay excluded as we expect from the bundle, would be covered by Medicare Part D and not by Medicare Part B as in boy. That creates an interesting situation where RAYALDEE will not be a cost to dialysis providers, rather, it would be a potential profit center given that it could be dispensed by dialysis centers pharmacies should they have pharmacies and that of course is the trend for dialysis centers now is to have more and more capability from the pharmacy standpoint. I hope that answered your question.

That was really helpful thanks. And just maybe two other quick follow-ups from me. Adam, can you give us sort of apples-to-apples comparison of the growth rate for by Bio-Reference, I know we've gone through exercise before comparing to the historically reported Bio-Reference numbers create some accounting issues from [comp that all of these standpoint].

So I think if you look at the Q4 to Q1 growth rate, you'd see that Bio-Reference revenue grew by just below 15% quarter-over-quarter and that's been really driven by a substantial increase in the patient counts particularly GeneDx. So those are the comparables, Kevin.

And then maybe one last one for me and then I'll get back in the queue maybe this one is for Steve. Steve, what's really the gating factor to kicking off the pediatric human growth hormone registration study sometime later this year.

It's just device and drug [supply in the] device and as we said before, we're going to start our trial with the device, the same device and the same formulation that we've commercialized. Pfizer's controlling that process and we're obviously supportive of the strategy.

(Operator Instructions) Rohit Vanjani, Oppenheimer.

I had a couple of questions on the RAYALDEE filing. For the Catalent plant in Florida, have they made any new hires or have they hired any consultants to come in and help with the action plan?

Jane Hsiao is here. She can respond.

Yes, indeed. They have consultants working with them, but most important is they have actually a very good quality team from top to the bottom. So very comfortable with their response.

And then when you submitted the action plan, does that mean that all the corrective actions -- that doesn't mean that they were all implemented as of the submission, right? It's more of a promise that you'll get those actions implemented by the PDUFA on 10/22/16.

No, their response is actually addressing the deficiencies. With regard to that, they have corrective action plan. By the time they submit this response on April 15, most of the corrective action are in place and some of them already completed and some of them will be completed in the next few weeks that includes implementing new standard operating procedures as well as training the employees. Very, very comprehensive response from their point of view.

And I'm assuming the FDA would have to come back and re-inspect the plant? Has that date already been decided and is that before the PDUFA?

FDA has not decided if there is a need for re-inspection as of today.

And just hypothetically, if the remediations can't be implemented quick enough and if you have to move to another Catalent site, let's say in Latin America for softgels, would you have to re-submit to the FDA in case of plant move and then what would the new timeline be again hypothetically?

Hypothetically, if one has to change the manufacturing site, that's basically start all over the development. That would take years to do and we are very confident that Catalent has very adequately addressed the deficiencies.

And Rohit, as you probably know, this facility is still operating. It is a huge facility, one of Catalent's largest that accounts for over 40% of the softgels in the US. It's continuing to operate ordinary [core]. So the only held up right now are new drug approval. So we are not at the stage where a facility has been shut down.

And then for the partnership with Fresenius, are you responsible for the manufacturing or are they?

We are.

Okay, we thank you all for participating once again and we look forward to being in touch with you next time.

Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines.