OPKO Health Inc (OPK) 2021 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to OPKO Health, Inc. Third Quarter 2021 Financial Results Conference Call. (Operator Instructions) As a reminder, this call is being recorded. (Operator Instructions)

I would now like to hand the conference over to your host today, Yvonne Briggs. Please go ahead.

Thank you, Sarah, and good afternoon. This is Yvonne Briggs with LHA. Thank you all for joining today's call to discuss OPKO Health's financial results for the third quarter of 2021.

I'd like to remind you that any statements made during this call by management other than statements of historical fact will be considered forward-looking and, as such, will be subject to risks and uncertainties that could materially affect the company's expected results. Those forward-looking statements include, without limitation, the various risks described in the company's SEC filings, including the annual report on Form 10-K for the year ended December 31, 2020, and in subsequently filed SEC reports.

Importantly, this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, today, October 28, 2021. Except as required by law, OPKO undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call.

Before we begin, let me review the format of today's call. Dr. Phillip Frost, Chairman and Chief Executive Officer, will open the call. Steve Rubin, OPKO's Executive Vice President, will provide a business update and pipeline review. And then Dr. Jon Cohen will discuss BioReference Laboratories. After that, Adam Logal, OPKO's CFO, will review the company's third quarter financial results. And then we'll open the call to questions.

Now I'd like to turn the call over to Dr. Frost.

I'll start with our pharmaceutical business. Good afternoon, and thank you for joining the call today. I'll start with our pharmaceutical business. We're pleased with Pfizer Canada's press release within the last hour indicating that Canada has become the first country to approve NGENLA, somatrogon, for pediatric growth hormone deficiency. This is an important milestone in our effort to provide a long-acting, once-weekly therapy for children with growth hormone deficiency. Our global regulatory applications for somatrogon continue to advance in other territories with the U.S., European and Japanese action dates expected during the first half of 2022.

We continue to execute strategic partnerships for our pipeline and technologies as an efficient way to have projects that we consider valuable funded by others and, at the same time, provide for their eventual distribution, particularly abroad. During our last call, we discussed a deal with Nicoya Therapeutics for RAYALDEE in China and another with CAMP4 Therapeutics for our AntagoNAT technology for rare genetic disorders. This past quarter, we announced one with LeaderMed Group for oxyntomodulin and Factor VIIa-CTP in China and other Asian territories. This new partnership provides an opportunity to extend the geographic reach of our novel long-acting development products with a partner that has significant local experience and knowledge of the market. Steve will provide more detail on this transaction in a moment.

In August, we announced patients -- we announced completion of our enrollment in our Phase II trial with RAYALDEE in COVID-19 outpatients. We believe RAYALDEE is the best option for raising serum 25D levels safely in patients with chronic kidney disease or COVID-19, especially in cases of obesity. There have been numerous independent studies reported recently describing an inverse correlation between blood vitamin D levels and risk of infection and COVID-19 severity. We expect to announce top line results for this study by the end of the year.

BioReference Laboratories' core clinical business continues to return to prepandemic levels with most physician accounts close to 2019 volumes. Our specialty diagnostics business is growing in our 4 focus areas of oncology, women's health, urology and strategic partnerships. Last quarter, BRL announced the acquisition of the U.S. Ariosa centralized laboratory prenatal testing business from Roche. This complements GenPath's present offering in noninvasive prenatal screening.

The growth of Scarlet Health's home blood drawing service continues. We've added many new clients, and Scarlet is now available to 80% of the U.S. population. BRL's COVID testing for surveillance and screening with our sports partners, schools, cruise industry and large employers continue to be vibrant. Our core of care testing continues to grow and has become a good portion of our COVID testing business. Retail testing of the general public, which spiked in August and September with the spread of the Delta variant, is now decreasing as the Delta surge has begun to wane.

I'll now turn the call over to Steve Rubin, who will provide further commentary on our pharmaceutical business. Steve?

Thank you, Phil, and good afternoon, everyone, and thank you for joining us today. We are pleased with our third quarter financial results as our pharmaceutical business continues to advance its licensing strategy, while BRL's core business returns to prepandemic volumes.

Of course, we are particularly excited about the approval from Health Canada of NGENLA or somatrogon for pediatric growth hormone deficiency. NGENLA is a once-weekly, long-acting recombinant human growth hormone for the long-term treatment of pediatric patients who have growth failure due to an inadequate secretion of endogenous growth hormone, otherwise known as growth hormone efficiency or GHD. NGENLA provides pediatric patients, their loved ones and care providers with the treatment option that reduces the treatment frequency for children from daily injections to once-weekly injections. Our global regulatory applications for somatrogon continue to advance in other territories with the U.S., European and Japanese action dates expected during the first half of 2022. We hope to share more positive news with this program in the relatively near future.

Recall that we entered into a worldwide agreement for the development and commercialization of somatrogon for the treatment of GHD. Under this agreement, OPKO is eligible to receive up to $275 million upon the achievement of certain milestones ranging from $20 million to $90 million. These milestones are triggered by regulatory approval in the U.S. and regulatory and pricing determinations in other major markets. In addition, upon launching in the primary regions of the U.S., Europe and Japan, we're entitled to regional tiered gross profit sharing on sales of both somatrogon and Pfizer's daily GHD drug, GENOTROPIN. Pending commencement of a profit sharing term within a region, we are entitled to tiered double-digit royalties on the sales of somatrogon within such region.

Moving to RAYALDEE, our treatment for the secondary hyperparathyroidism in adults with stage 3 or 4 chronic kidney disease and low vitamin D levels. The numbers for the quarter break down as follows. Total prescriptions for RAYALDEE in Q3 2021, as reported by IQVIA, were approximately 11,500, representing a decrease from approximately 16,700 in Q3 of 2020. RAYALDEE sales continued to be impacted by pandemic-related challenges in onboarding new patients, although we believe the downward trend in sales has bottomed out and has started to reverse.

New patient starts decreased by 2.3% in Q3 versus Q2. Since the product was launched, nearly 28,000 patients have had RAYALDEE prescribed by approximately 3,900 physicians. More than 140 physicians or nearly 8% of the total number of prescribers were new RAYALDEE prescribers in Q3. And as Phil mentioned, in late August, we announced completion of enrollment in our Phase II trial with RAYALDEE to treat COVID-19 outpatients. Final enrollment totaled 171 subjects, and the last subject exited the study earlier this month.

The REsCue trial randomized symptomatic COVID-19 patients in a 1:1 ratio to 4 weeks of treatment with RAYALDEE or placebo and a 2-week follow-up. The primary efficacy end points include raising and maintaining serum total 25-hydroxyvitamin D to 50 to 100 nanogram per ml and a time to resolution of COVID-19 symptoms as self-reported by -- each day by subjects using a validated questionnaire. Secondary end points include incidence of emergency room or urgent care visits; oxygen saturation below 94%; need for and duration of hospitalization and requirement for mechanical ventilation; mortality rate and severity; and finally, duration of illness as evidenced by quality of life and biochemical measures. Top line data from this randomized, double-blind, placebo-controlled trial are expected by the end of this year.

In September, we announced a joint venture with LeaderMed Group to develop, manufacture and commercialize oxyntomodulin and Factor VIIa-CTP in Greater China and 8 other Asian territories. OPKO holds a 47% ownership interest in the joint venture. OPK88003 is an oxyntomodulin analog being developed for the treatment of obesity and diabetes, and Factor VIIa-CTP is a novel long-acting coagulation factor being developed to treat hemophilia. LeaderMed will be responsible for funding the joint venture's operations, development and commercialization efforts and made an initial investment of $11 million. We will retain full rights to oxyntomodulin and Factor VIIa-CTP in all other geographies.

Now let me turn the call over to Jon Cohen to discuss BioReference Laboratories. Jon?

Thanks, Steve, and good afternoon, everybody. BioReference Laboratories' core clinical lab business continues to rebound to prepandemic levels and even more so as COVID-19 cases subside. A majority of our clinical accounts are close to normalized levels compared to 2019. BioReference's core testing volume at the end of the third quarter was up slightly versus the prior year period. Women's health specialty testing volume is up 12% year-to-date and 6% this quarter compared to Q3 of last year.

In August, we announced our acquisition of the U.S. Ariosa centralized laboratory prenatal testing business from Roche. Ariosa's noninvasive prenatal screening test called the Harmony Prenatal Test is one of the most widely studied tests in prenatal screening and has been used in more than 1.5 million patients. It is a blood test that is performed as early as 10 weeks into pregnancy and is designed to assess the risk of Down syndrome and other genetic abnormalities. Specifically, the NIPS test assesses the risk of trisomy 13, 18 and 21, which are indicative of an extra chromosome in the fetus that could lead to severe genetic conditions. The acquisition of Ariosa complements our current NIPS offering at GenPath.

In addition, as a result of recent ACOG guidelines that have changed to include NIPS for most pregnancies, we will continue to focus on Medicaid state agencies for broader NIPS coverage for all pregnant women. With significant focus in driving sales for NIPS and the expanded client base, we see a potential to triple our current NIPS volume.

Our oncology business continues to outperform and is up 20% over prior year with growth in NGS, solid tumor, hematology and hereditary cancer testing. We launched a new multiple myeloma offering in Q3 to help us continue to be best-in-class in our hematology offering. Our strategic partnership initiative, including large medical groups, FQHCs, accountable care organizations and health systems, continues to grow with significant strong performance in our growing hospital reference business as well as capturing more business from our physician medical group partners.

We continue to make advancements with our digital home draw solutions, Scarlet Health. Scarlet offers numerous benefits for busy patients who do not have time to visit a patient service center or for homebound patients with chronic conditions who need routine testing. In August, we were pleased to begin offering Scarlet services to UnitedHealthcare members in addition to several other national and regional health plans. We continue to see significant demand for Scarlet across a multitude of commercial verticals. In September, we joined forces with the specialist sports performance and biomarker company, Orreco, to provide Scarlet Health for preseason athlete physicals and in-season testing for professional and collegiate athletes. Scarlet Health is now available to 80% of the U.S. population.

Now I would like to address our COVID testing services. During the third quarter, we performed 2.2 million COVID-19 PCR tests. Since the pandemic began, we have performed more than 19 million COVID-19 molecular tests. We saw significant increases in volume in July and August in our retail offering as a result of the Delta surge at our retail access sites. Retail volumes have begun to come down again as Delta peaked in September. With the flu season now underway, we anticipate continued clinical testing from our physician clients as they will want to determine whether the patients have flu or COVID, ordering those tests either individually or in combination with our COVID/flu offering.

BRL continues to perform a significant amount of surveillance testing as the nation returns to normal life. We continue to have a robust demand for our programs for our sports leagues, public and private school systems, large entertainment events, employers and the travel industry. We believe that many of these customers will continue their COVID-19 screening programs throughout 2022. We performed testing for over 200 cruises and started testing for virgin cruises this quarter. Many large employers are testing their nonvaccinated employees.

In Q3, we executed new agreements to serve the NFL, the NBA and the NHL for another season. We are currently servicing over 200 sports teams in over 30 major U.S.A. markets. In addition, we tested other large sports events, including the Chicago Marathon, the U.S.A. Soccer World Cup qualifiers, ATP tennis events, USGA golf, U.S.A. basketball for the Olympics, Premier Lacrosse League, AHL hockey teams, Formula E race car race, MLS kids' soccer camps, Basketball Hall of Fame, NFL Hall of Fame and stadium employee testing. In addition, we performed testing for the [EPSI] and the Tony Awards. Our point-of-care testing capabilities continue to play a very important role in our COVID offering as demand shifts to on-site screening. Year-to-date, we have conducted almost 800,000 COVID tests, 230,000 point of care in Q3.

In conjunction with Rite Aid and the U.S. Department of Health and Human Services, we announced a back-to-school COVID-19 program to offer students at public schools across the state of New York the opportunity for free COVID-19 testing prior to the start of the '21-'22 academic year. We are pleased to be able to continue to support New York state's active surveillance programs with this initiative. In addition, we continue to have strong demand for our school testing program around the country.

Genetic testing volume at GeneDx increased by more than 19% versus the prior year period driven by our industry-leading exome testing offerings. In September, we announced that GeneDx completed clinical genetic exome testing sequencing for more than 300,000 patients, making the company's data set the largest of its kind in the world. With the volume of clinical exome testing accelerating more than 40% annually, GeneDx has played an important role in supporting rare disease diagnosis for hundreds of thousands of patients while also expanding our understanding of the genetic disease relationships.

The team also added 2 new biopharma partnerships for sponsor testing to increase access to testing in rare diseases. These included a hereditary neuropathy panel to test individuals at risk or suspected of having giant axonal neuropathy in partnership with Taysha Gene Therapies and a partnership with Krystal Biotech to test for rare skin diseases.

I will now turn it over to our CFO, Adam.

Thank you, Jon. For the third quarter, we produced strong financial results across all parts of our business. On a consolidated basis, we reported operating income of $37.8 million compared to 2020 operating income of $21.9 million. Both of our operating segments reported operating income, and the 2021 period included the gain on the sale of our facility in Ireland. Net income for the third quarter of 2021 increased 21% to $28.7 million or $0.04 per diluted share compared to net income of $23.7 million or $0.04 per diluted share during the 2020 period.

Our diagnostics segment reported revenue from services significantly higher than our previously issued financial guidance as a result of the increase in demand for COVID-19 testing due to the Delta variant as well as the continued execution of our broader COVID-19 testing strategy Jon outlined. When comparing the third quarter of 2021 to 2020, overall revenue from services decreased to $340 million from $382 million. However, we were able to see an improvement in gross margin of approximately 100 basis points.

We continue to invest in our commercial organization, including Scarlet Health, our digital health platform that Jon mentioned earlier, as well as increasing our GeneDx commercial team. We continue to manage these investments with a focus on near-term growth opportunities. Even with these investments, the diagnostics segment reported operating income of $19.7 million during the third quarter of 2021 compared to operating income of $46.2 million for the 2020 period. The 2020 period benefited from a nonrecurring $10 million payment under the CARES Act. Total cost and expenses decreased to $320 million compared to $346 million for the 2020 period.

Moving to our pharmaceuticals segment. We reported revenues of $45.7 million for the third quarter of 2021 compared to $35.5 million for the 2020 period. Revenue from product sales in the third quarter increased 28% to $36.9 million, which includes $8.5 million of revenue from RAYALDEE compared to $28.7 million in the 2020 period, inclusive of $8.1 million of RAYALDEE revenue. RAYALDEE revenue benefited from a higher net sales price as a result of decreased Medicare Part D rebates, as we have seen volumes decline in that channel of the business. When we look at revenue from the transfer of intellectual property, we reported $8.8 million of revenue for the 2021 period compared to $6.8 million a year ago, reflecting the LeaderMed and CAMP4 transactions Phil mentioned earlier, partially offset by decreased somatrogon R&D-related revenue.

Operating income from our pharmaceuticals segment was $28.6 million for the third quarter of 2021 and included a $31.5 million gain related to the sale of our fill-and-finish facility in Ireland as well as improved operating performance in our international pharmaceutical businesses as well as from our RAYALDEE commercial organization. The comparable period of 2020 reported an operating loss of $14.4 million.

Overall research and development expense for the third quarter of 2021 was $12.9 million compared to $14.5 million in 2020, reflecting reduced spending on our somatrogon development program.

Our cash balance as of September 30 was $148.6 million, and we have approximately $64 million of availability under our recently renewed line of credit with JPMorgan. The combination of our cash on hand and our lines of credit provide us with a strong balance sheet and adequate capital resources.

As we look into the final quarter of 2021, we see continued opportunity to generate operating cash flow. Given the uncertainty of the testing demands for COVID, we again are limiting our forward-looking guidance for the fourth quarter and have built in the following assumptions to our forecast. We anticipate performing between 1.7 million and 2.1 million COVID PCR, point of care and antibody tests during the fourth quarter. As Jon mentioned, we have capacity well in excess of these levels should demand for testing increase or revenue could expand beyond our guidance. Through October 27, we've already performed over 800,000 COVID tests. So our range of guidance reflect testing demand from our physician and general public channels, with our more stable channels in the sports, education and leisure activities remaining strong. We assume our base business for both clinical and genetic testing will remain at current levels. Based on the latest trends for RAYALDEE, we anticipate sequential volume growth during the fourth quarter of 2021 but expect volumes to remain below the comparable period of 2020.

With that, overall, we expect revenue for the fourth quarter of 2021 to be between $290 million and $320 million, including revenue from services of $250 million to $280 million, revenue from products of $32 million to $36 million and other revenue of $4 million to $6 million. We expect costs and expenses to be between $300 million and $330 million, resulting in operating results ranging from a loss of $10 million to operating profit of $10 million. Operating results include approximately $19 million of noncash depreciation and amortization expense as well as the expectation of research and development expense of $17 million to $20 million.

With that, I'll open up the call for questions. Operator?

(Operator Instructions) Our first question comes from the line of Maury Raycroft with Jefferies.

This is Kevin Strang on for Maury. Congrats on the quarter. First question, just on COVID testing. Could you contextualize how much of your revenue came from the professional sports contracts, including the NFL versus entertainment contracts and then how these contracts affected your average reimbursement from testing?

So I'll -- Jon, I'll take it, and you can jump in. So we don't necessarily break it down in -- between any individual channels. But what I'd say is about half of the volume comes from our retail and physician referral business, and the other half comes from the other channels at least during the most recent quarter.

Okay. Great. And for the recently announced Ascendis pricing, I just wanted to get your thoughts on that and then what metrics that you're going to be following in their launch.

So Pfizer is solely responsible for pricing. So we don't really have a whole lot of input there at this point.

Our next question comes from the line of Edward Tenthoff with Piper Sandler.

Great. My question has to do with RAYALDEE in COVID. And I'm wondering what format should we anticipate releasing that data? When could we get that data and what would be next steps?

So thank you for that question. We're in the process of cleaning the data and getting ready to launch the database. It will be some time before we actually complete the analysis of the final data set. The release of the data will come in the form of a press release as well as a publication, presuming that the data are positive.

Our next question comes from the line of Jeffrey Cohen with Ladenburg.

I wondered if you could talk about the NIPS market a little bit in your commentary about hoping to driving triple-ish growth from the one end. And can you talk about the prenatal testing and Scarlet as far as what you're seeing and what kind of integration you may see there going forward?

So I mean, I'll take the second part there. There is a potential significant overlap between the NIP testing and Scarlet relative to large women's health groups. As you know, 1 of our 4 major specialty areas are women's health, where we continue to have significant growth and make significant investments. Many of those accounts, quite honestly, or most of those are with large women's groups. So as a result of that, the overlap with Scarlet can have a potentially additional effect.

Okay. Got it. Was there a milestone associated with the somatrogon approval from Canada [today]? And do you expect the NGENLA name to be the same in the U.S. as well if or when approved?

So there is no milestone associated with the Canadian approval. And the answer is yes, we would expect the name to be the same in the U.S.

Okay. Perfect. Got it. And then could -- Adam, could you go through a little bit on the margin side? It looked like there was a 190 basis point beat off our estimates, which looks pretty positive. Is there any trend there? Or is there any specific product lines or areas to call out either on the upside or the downside?

So within the lab business, it was, overall, we saw higher net realized prices across the board. There wasn't any one individual driver there. So we were -- it was mostly on net realized price improvements. And on the cost side, it was pretty similar to what we've seen in the past.

On the pharmaceutical side, we did see a net improvement on RAYALDEE as a result of lower Medicare Part D rebates or net price during the quarter. As you can see, the script volume was down. But overall, revenue was pretty significant. So we've started to realize a higher net price than what we had previously seen as a result of those Part D patients kind of rolling off.

Okay. That's helpful. And then lastly for me, along the same lines, Adam, any commentary on labor or labor issues? I know, and in particular to BioReference, arguably, your test volumes are a little softer on the COVID side. But anything you're experiencing there to call out over the past couple of months?

Jon can add more color.

Yes.

But it's certainly been a tough labor market in staffing up in the lab business overall. We did overcome it, but it was certainly a challenge during the third quarter.

Yes. I would say that we were moving relatively quickly by the end of May, beginning of June to take out costs and a significant amount of labor because the COVID volumes, as you recall, started going down. We then had a U-turn as Delta hit. So in that respect, we had to essentially rehire many people. And at that point, it was difficult. We got through it, but it was a challenge for about 4 weeks to get enough people to rehire because the labor market was so tough.

Our next question comes from the line of Yale Jen with Laidlaw & Company.

In terms of the COVID testing, Adam, you have guided it may be 1.7 million to 2 million tests for the next quarter. Do you guys see that if we assume that the testing will resume -- I mean, continue for next year, is the 1.7 million or maybe a little bit lower than that could be a baseline for potentially a few more quarters into 2022?

So Yale, the guide that we gave, if you just -- we processed over 800,000 tests so far this month of October. And we guided the 1.7 million to 2.1 million. That indicates that you'll -- we're just going to see a slowing of testing into the back half of the quarter. And it's really difficult to predict how fast or slow the broader infection rates will either grow or decline. So it's tough to say what a good baseline is for next year.

I think we're pretty comfortable with the quarter guide. But really, the demand coming from the general public is what pushed our overall volume significantly higher than what we had guided for in the third quarter. So it's a challenge to try to predict the infection rates on a broader basis, at least for us.

Jon, I don't know if you have anything to add.

Yes. I think there is, as Adam said, an unpredictability factor. I think that one of the probably largest gating issues is what happens with the flu season, and nobody knows. If there's a significant flu season, you'll see a significant increase in probably COVID testing, concomitant with people who are going to want to know whether they have COVID or the flu. So that's a significant issue as we get into the winter months, which will impact on -- could possibly impact on Q4 and Q1 of next year.

Okay. Great. That's very helpful. Maybe, Jon, just another question on the testing side, which is that the Ariosa acquisition, what do you think it could be the impact on the top line maybe over the next year or next few quarters with this acquisition?

Yes. I don't -- I'm not going to get into what I think the actual top line revenue number will be. I mean we're in the process, of course, of moving as many of the clients over as soon as possible and setting them up. So I don't -- I can't comment about how quick or what the ramp-up will be yet, but it is obviously a significant focus of the women's health organization right now.

Okay. Great. And maybe the last question on the drug side. Again, for the NGENLA, Pfizer indicated that the FDA request additional data, and that's why the PDUFA would push to the next -- January of next year. Have they provided more colors in terms of what sort of data the FDA was requesting?

It actually wasn't a direct FDA request. It was Pfizer -- just delivery of additional data based upon timing since the trial had ended. It's just continuation of the study and open label information.

Thank you. There are no further questions. I will now turn the call back to Dr. Frost for closing remarks.

So thank you all for participating. At our end, we're all very excited about the approval of our growth hormone product in Canada. And we're looking forward to having it approved in other countries as the year goes on or into early next year, possibly. We look forward to being with you again at the end of the next quarter or after the end of next quarter. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.