OPKO Health Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2023

There are 11 speakers on the call.

Operator

Good day, and welcome to the OpCo Health Second Quarter 2023 Financial Results Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Yvonne Briggs.

Speaker 1

Thank you, operator, and good afternoon. This is Yvonne Briggs with LHA. Thank you all for joining today's call to discuss OpCo Health's financial results for the in the Q2 of 2023. 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 can materially affect the company's expected results. These forward looking statements include, without limitation, the various risks described in the company's SEC filings, including the annual report on Form 10 ks for the year ended December 31, 2022, and have subsequently filed SEC reports.

Speaker 1

This conference call contains time sensitive information that is accurate only as of the date of the live broadcast, August 3, 2023. Except as required by law, Opco undertakes no obligation to revise or update any Before we begin, let me review the format for today's call. Doctor. Philip Frost, Chairman and Chief Executive Officer, will open the call. Doctor.

Speaker 1

Elias Zerhouni, Vice Chairman and President of OpCo, We'll then provide an overview of OpCo's Pharmaceutical business as well as BioReference Health. After that, Adam Logel, OpCo's CFO, will review the company's Q2 financial results and then we'll open the call to questions. Now, I'd like to turn the call over to Doctor. Frost.

Speaker 2

Good afternoon, and thank you for joining us today. In June, we were pleased to announce what we had been expecting for more than a year. FDA approval of anglena, Our long acting, once weekly human growth hormone analog to treat pediatric patients aged 3 and older. Our global commercial partner, Pfizer, has indicated and expects angenla to become available this month for prescribing in the U. S.

Speaker 2

This approval triggered a $90,000,000 milestone payment from Pfizer and leads to a profit sharing arrangement that Adam will discuss in more detail. That decision by the FDA as to when Genworth's approvals in over 40 countries, with commercial launches to date in over 18, including the major markets of Japan, Germany, France, Spain and the United Kingdom. Pfizer expects to launch And generally in another 18 or more countries during the remainder of this year, covering all priority international markets by year end. With U. S.

Speaker 2

Approval, we expect to see significant ramp up in sales for INGENLA as market penetration continues to expand globally. With Pfizer's global commercial infrastructure and longstanding experience in this particular Good segment. We couldn't have a better partner. On another front, we continue to advance the sophisticated science of our MODEX unit toward clinical trials. MODEX's novel approaches are validated by the exclusive worldwide collaboration with Merck that we announced in March to develop our multivalent nanoparticle Epstein Barr virus vaccine.

Speaker 2

Our strategy was to secure a large pharmaceutical partner to develop the EBV vaccine, and we have a great one in Merck. Despite the significant prevalence of this virus and its potential to cause head and neck, stomach and other cancers, As well as multiple sclerosis, there are currently no FDA approved vaccines for EBV. At BioReference Health, we continue to drive cost control efforts in parallel with work to enhance innovation and productivity. We look forward to our Diagnostics segments returning to profitability in the near future. Our international operations continue to perform well, with both our Ibero American and FinTech businesses demonstrating profitability and growth this past quarter.

Speaker 2

With that brief overview, I'll turn the call over to Elias to provide further discussion and commentary on our Pharmaceutical and Diagnostic businesses. Elias?

Speaker 3

Thank you, Doctor. Frost, and good afternoon, everyone. As Doctor. Frost just mentioned, we were extremely proud to announce the approval of This long acting treatment reduces the burden on children with growth hormone deficiency with injection frequency going from daily administration to once weekly. Upon the upcoming launch later this month in the U.

Speaker 3

S, OpCo will be entitled to a profit sharing arrangement with Pfizer on a worldwide basis, which is based on regional tiered gross profit on both ANGELA and GENOTROPIN, Pfizer's daily human growth hormone. Now turning to MODEX, as mentioned by Doctor. We are advancing our recently announced collaboration with Merck to develop our Epstein Barr virus multivalent nanoparticle vaccine. This collaboration is significant and that it addresses an important unmet clinical need, but also validates MODEX's innovative multi targeting technologies. Our vaccine targets the 4 major Epstein Barr virus proteins known to allow the virus to enter human cells.

Speaker 3

This multi targeted approach holds potential to provide complete protection against this virus, which affects up to 95% of the global adult population during their lifetime with over 200,000 cases of related cancers per year and a strong link to multiple sclerosis. We're now jointly working with Merck on IND enabling studies to enter the clinic as soon as possible. In addition to the EBV vaccine, our antiviral program is focused on other indications, including the treatment and prevention of We have a partnership with the NIH to develop a tri specific candidate to both prevent and treat HIV. And the NIH is providing funding for this program, which is in Phase 1. In addition, we're working on next generation candidates that offer up to 10 fold improvements in potency and greater breadth of antiviral activity against the majority of global HIV strength.

Speaker 3

Current HIV medicines still have limitations, including drug toxicity due to lifelong therapy and drug resistance that can impact the efficacy of viral suppression. Additionally, we're working on the COVID multi specific antibody program to address the emergence of resistant variants on a global basis. We believe the virus will remain in the human population for some time to come and will require novel therapies, especially for at risk patients who have Underlying medical conditions or a suppressed immune system. Since our technology platform is modular, It allows for the rational selection of antibodies to optimize potency against current and future strains and prevent the emergence of viral resistance. This program is partially funded by DARPA and we are in late stage preclinical testing.

Speaker 3

Recently, we applied for further funding from BARDA to support our COVID-nineteen multispecific antibody program and platform as well as for seasonal influenza therapy and prevention. Now, on another Side of our programs, our oncology program focuses on hard to treat solid tumors, but also on the treatment of leukemia and lymphoma. As you know, many cancer therapies still fail to achieve or maintain a positive response with a loss of tumor antigen expression as one of the main reasons. Our multi specific antibody candidates are designed to engage and optimize T cell function while preventing tumor antigen escape. These programs are in the preclinical stage with plans to enter 2 programs in the clinic in 2024.

Speaker 3

Moving now to RAYALDEE, our treatment for secondary hyperthyroidism In adults with Stage 3 or 4 chronic disease, chronic kidney disease and low vitamin D levels, the numbers for the quarter break down as follows. Total prescriptions for RAYALDEE in the Q2 of 2023, as reported by IQVIA, were approximately 13,100, representing an increase of 5.8% from approximately 12,385 in the previous quarter. Riodiesel sales are steadily recovering from the impact of pandemic related challenges in onboarding new patients. Let me go now to our Diagnostics segment at BioReference Health, where our focus remains on improving the performance of the company following the major drop in COVID revenues by driving cost efficiencies, by improving revenue cycle management, achieving volume growth and increasing market access with an ultimate goal of improving operating margins towards profitability in the upcoming quarters. Through these initiatives, we've been able to further reduce our workforce by 7% in the Q2 with more than 200 positions eliminated.

Speaker 3

In the laboratories, we have realized further cost reductions by better reagent and supplies, pricing and utilization, as well as streamlining management structures and operation. In regard to revenue cycle management, we're improving the actual realization on our billed services by increasing payer coverage and access, enhancing our pre authorization procedures, reducing unbillables and introducing co pay and point of care collections as well as bad debt collections. For example, our market access team has succeeded in negotiating contracts that will result in more covered lives and improved payer reimbursement. For example, we received the status of Preferred lab network by United Healthcare for 2023 for the 5th consecutive year. We reached a 3 year contract agreement with Humana, which includes reimbursement on the 4 ks score test and negotiated a new amendment with Cigna for additional CPT code coverage.

Speaker 3

We also reached an agreement with CareSource, which will open up the Ohio, Georgia, Indiana, Kentucky, North Carolina, Arkansas and West Virginia markets among others. We have also reorganized our commercial team based on 3 regions, The Northeast, the Southeast and the West. The structure will allow us to more effectively address growth opportunities aligned with the local healthcare industry and local market conditions in each region. We continue to focus Growth efforts in specialty diagnostics and health systems with growing pipelines in both and begun to develop services for Pharmaceutical Industry clients. In oncology, for example, we've seen volume growth predominantly led by our Molecular Genomics OncoCyte and OncoCyte Advanced Portfolio, which have been well received and are growing in volume and scope of services.

Speaker 3

In women's health, last quarter, we introduced Syntech Plus Cytology, which is the only FDA approved Triage test that uses HBV dual biomarker technology to triage women with HBV positive results with test orders steadily increasing in the Q2. We also continue to see strong volume growth at ophagolone plus a blood test that detects ovarian cancer risk and In women diagnosed with atopic mass, we have a planned surgery. Our urology segments remain focused on marketing our proprietary 4 ks score test, which now is included in the American Urology Association clinical guidelines for urologists. Our expanded health systems commercial team continues to build our hospital and health system business line by increasing our reach in hospital laboratory management, outreach and reference work, creating meaningful and collaborative solutions that address the challenges many hospitals and health systems are facing currently. In summary, as we keep a disciplined approach to improve margins performance, we're seeing steady progress on our path back towards profitable growth.

Speaker 3

I will now turn the call over to Adam Logau to discuss our Q2 financial results. Adam?

Speaker 4

Thank you, Elias. Starting with our Pharmaceutical segment, revenue increased to $138,400,000 for the Q2 of 2023 from $123,100,000 for the comparable period of 2022. This increase reflects the $90,000,000 milestone payment due from Pfizer related to the approval in the U. S. For Ingenla during the Q2 of 2023 versus $85,000,000,000 in milestone payments from Pfizer for the approvals of Ingenla in Japan and the European Union during the 2022 quarter as well as higher gross profit share payments from Pfizer during the quarter.

Speaker 4

Revenue from RAYALDEE and our international pharmaceutical businesses increased by $7,600,000 reflecting improvements in overall prescriptions and net price as well as gains from currency exchange in Chile and Mexico. Costs and expenses for our Pharmaceutical segment $74,700,000 for the Q2 of 2023 compared to $67,700,000 for the 2022 period. Research and development expense for the Q2 of 2023 were $17,500,000 compared with $14,800,000 for the 2022 period. This increase reflects activities from our MODEX development programs, partially offset by decreased spending for our Engenla development activities. The resulting operating income for the quarter ended June 30, 2023 was $63,600,000 an $8,200,000 improvement from operating income of $55,400,000 for the Q2 of 2022.

Speaker 4

Amortization expense related to intangible assets was $16,500,000 $16,700,000 respectively, for the 2023 2022 quarters. Moving to our Diagnostics segment. We reported revenue for the Q2 of 2023 of $127,000,000 compared to $186,800,000 for the 2022 period. This decline primarily reflects lower COVID testing volumes. As Elias discussed, our focus at BioReference remains to identify profitable growth verticals and to maximize operating efficiency.

Speaker 4

We've strategically invested in additional commercial resources in our higher growth specialty verticals and expect to begin yielding returns on those investments during in the second half of twenty twenty three. We continue to execute our reach expense reduction program at BioReference. And as Elias discussed, we have also identified a number of near and medium term growth programs that we continue to expect through the balance of the year. Operating expense for our Diagnostics segment was $44,300,000 for the quarter compared to $57,500,000 for the prior year. Amortization and depreciation expense included in operating loss were $8,600,000 $10,200,000 respectively for the 'twenty three and 2020 2 periods.

Speaker 4

Turning to consolidated financial results for the Q2, we reported operating income of $7,000,000 compared with an operating loss of $10,700,000 for the 2022 quarter. Net loss for the Q2 of 2023 was $19,600,000 or $0.03 per share. This compares to a net loss of $101,700,000 or 0 point 14 for the 2022 quarter. Net loss for both periods was negatively impacted by the mark to market losses from GeneDx's stock price decline of $19,900,000 $71,200,000 respectively for the 'twenty two and 'twenty three periods. As we look at the current quarter, we are providing financial guidance with the following assumptions.

Speaker 4

For our Pharmaceutical We have assumed that the U. S. Region for Ingenla will be in the gross profit share commencing in September as Pfizer's U. S. Launch is expected to begin in late August.

Speaker 4

During the Q1 of 2023, the European region shifted to a gross profit share Going forward, both the European region and Japanese regions will result in gross profit share consisting of Genotropin and Ingenla. For the 1st 6 months of 'twenty 3, Pfizer reported approximately $222,000,000 of global genotropin sales. We assume a stable foreign currency exchange for our ex U. S. Pharmaceutical businesses.

Speaker 4

We have seen a 10% favorable impact on our businesses over the last 12 months. For costs and expenses related to R and D, we expect to wind down the clinical operations of Ingenla the pediatric indication as quickly as possible with final clinical site closure visits occurring now through the first half of The decreases are expected to be offset by increased R and D activities related to our MODEX development programs that Elias discussed. Regarding the assumptions for our Diagnostics segment, we assume COVID testing volumes remain an insignificant portion of our overall testing volumes. We have also assumed consistent core testing volumes with growth in our higher margin oncology and urology specialty lines as well as a slight increase in the average per patient collection amount due to our revenue cycle management initiatives. As a result, we expect the following for the Q3 of 2023.

Speaker 4

Total revenue between $165,000,000 $180,000,000 This includes revenue from services between $126,000,000 $135,000,000 Revenue from product sales between $32,000,000 $36,000,000 and other revenue between $5,000,000 $10,000,000 inclusive of the estimated Pfizer gross profit share. We expect the Q3 'twenty three costs and expenses to be between $240,000,000 $250,000,000 including R and D expense of $21,000,000 to $24,000,000 And depreciation and amortization expense of approximately $26,000,000 That concludes our prepared remarks. Thank you all for your attention. And now, operator, let's open the call for questions.

Operator

We will now begin the question and answer session. Our first question comes from Maury Bancroft from Jefferies. Please go ahead.

Speaker 5

Hi, this is Kevin on for Maury. Congrats on the quarter and thanks for taking my questions. First question on the Nagendra profit share. I know you mentioned that This would come about likely in September. Do you know when we could get more details on the agreement there?

Speaker 5

And then Your latest thoughts on when we could break out the Magenla revenue? Thank you.

Speaker 4

Thanks, Kevin, for the question. So we guided the total Revenue is coming from the profit share lines to be between $5,000,000 $10,000,000 for the 3rd quarter, which is pretty Given that the Pfizer is really just going to start launching in the U. S. Region in the next couple of weeks here. So As that continues to develop, we'll provide some better purviews into that.

Speaker 4

But I think from our overall guide, we've Talked about the total potential opportunity is significant. Just in these early days, it's difficult for us to be very specific on how Pfizer is going to launch the product.

Speaker 5

Okay. Yes. Thanks, Adam. And then just One on the diagnostics business. So, you mentioned returning to profitability in the near future.

Speaker 5

Are you guiding more specifically in that regard in terms of maybe by the end of this year or by early next year? And then also In terms of returning to profitability, are you also guiding to returning growth as well? Thanks.

Speaker 4

Elias, I don't know if you want to go with any comments and I can add in as well.

Speaker 3

Well, yes, sure. I mean, our plans are to basically reach Breakeven by the end of the year, beginning of 2024 and then have profitable growth in 2024. The question you asked about growth, it's obviously the key to the success here is Continuous growth. So, yes, we're not depending just on cost reductions. We're also as Adam mentioned, we have made investments In the commercial realm and in focused new verticals like the pharmaceutical Industry, which I know well, which has a launch potential, I believe, and we're working on it, as well as the health systems business line.

Speaker 4

Yes. So maybe I'll just add on our guide here. We guided 126,000,000 to 135,000,000 against the Q2, which reported $127,000,000 So from that perspective, Kevin, we do See, there's some upside here in the near term and hope to Elyse's point continue to build on that into the future quarters.

Speaker 5

Makes sense. Great. Thanks for answering my questions.

Operator

Our next question comes from Jeffrey Cohen from Ladenburg Thalmann. Please go ahead.

Speaker 6

Thank you all for taking our questions. Firstly, Adam, could you break out for us service revenue, the cost of service revenue and the cost of product revenue? I actually see Your queue just hit momentarily.

Speaker 4

Yes. So the queue is out there. I can break it down for you, Jeff, if you need.

Speaker 6

But it's in the queue, yes?

Speaker 4

Yes, it's in the queue.

Speaker 6

Okay, perfect. And could you talk anyone there a little bit about The OVA plus test and perhaps some of the traction or pricing or geographical presence that you're Generating thus far?

Speaker 3

Yes. O plus is growing quite a bit. And basically in our catchment area at this point where our sales force is present and our women's health presence is I cannot give you specific numbers, but I can certainly follow-up with you on that.

Speaker 6

Okay. That's helpful. Any commentary specific to RAYALDEE? I saw 7.7 for the quarter. Any Outlook or guidance there on revenues or prescriptions or growth?

Speaker 4

So we didn't get go specific, but it has continued. Elias had called out the year over year prescription growth of just below 6%. So I think we're Continuing to see that build, consistent with prior years, we see the net reimbursement improve throughout the year for RAYALDEE. So you should we should see continued growth sequentially, but we didn't call it out any specific guide there.

Speaker 3

Just a little It was 6% quarter on previous quarter, Q2 over Q1.

Speaker 4

Right.

Speaker 3

Not previous year.

Speaker 6

Okay, got it. That's helpful. Adam, I see it in the Q, the revenue from services and products That's helpful. And any commentary on margins? Should we expect for some cost reductions to see margins improve On the service side over the balance of this year or that's more of a 'twenty four issue?

Speaker 3

We're working on improving the margins this year. I mean, as you know, I just mentioned, we've reduced headcount by 7 We're looking at multiple areas where margins need to be improved. We have You know, renegotiations with payers as well and pricing review as well as contribution margins review. So my expectation is So, narrow the margins improve the margins to narrow and get to breakeven, Hopefully, at the end of the year, beginning of Q1 or Q1 2024.

Speaker 6

Okay. And then lastly, Adam, okay for us to use on the cash, the $1081,000,000 plus the $90,000,000 Expected this month, I think?

Speaker 4

Yes, that's right.

Speaker 6

Okay, perfect. That's it for us. Thank you very much for taking the questions.

Speaker 2

Thanks, Jeff.

Speaker 3

Thank you, Jeff.

Operator

Our next question comes from Yi Chen from H. C. Wainwright. Please go ahead.

Speaker 7

Hey, this is Chetan on behalf of Yi Chen. Congrats on all the progress. My first question is on MODX. Any color on the type of cancer indications that you would like to target next year in the Phase 1?

Speaker 3

So we have 2 programs that are the most advanced. 1 is for solid tumors and it's going to be tested against the basket So the tumors to try to see where we get the most response. So the solid tumors, as you know, Prostate cancer, gastric cancer, pancreatic cancer and non small cell lung cancer. So I can't tell you which one will emerge or which ones will emerge, but that's the trust of the program on solid tumors. And then we have a program on liquid tumors, leukemias and lymphomas, which is a parallel program that also will emerge in the clinic, hopefully as early as possible 2024, but we think by the end of 2024, we'll have 2 programs and 2 cancer programs in the clinic.

Speaker 7

Thank you. And the other thing on your diagnostics business, I know you mentioned Some of the cost cutting steps in your prepared remarks. And I'm sorry if I missed it, but could you highlight some of

Speaker 8

the other growth initiatives that you have planned

Speaker 7

for that business unit? That you have planned for that business unit? I know you've mentioned a few, but is there any important ones that you need

Speaker 3

to know? So I mean basically we're doing a full review of the business and its mechanisms. So in addition to cost reduction, we're also looking at revenue improvements on the business we have, all right? So that's the revenue Cycle management initiative. And that actually is quite promising because it turns out that if you look at The way we were capturing revenues, we had quite a significant loss in terms of billables due to incomplete CPT codes, ICD-ten codes and pre authorization, which is a common strategy that payers are using.

Speaker 3

So we put countermeasures to that and it's paying off. In addition, The company never really focused on point of care collections like co pay. And if you look at the number of accessions we do, just capturing a few dollars Makes a huge difference. So that's, if you will, on rightsizing the spend versus

Speaker 8

When you look at the

Speaker 3

growth, we've grown in oncology, we've grown in women's health, and we've continued to focus on these specialty services. The one that's emerging and we'll make some announcements, I hope, over the next few weeks is large systems that Really are facing very difficult margins and we, for example, manage now the Westchester Medical Center Laboratories and capture an increasing share of the outreach business with that. And we are Essentially increasing the funnel, we increased our sales force in that category from 1, to salespeople before 5, 6 today. And we're focusing on the regional approach because As you probably know, the situation of hospitals and the need for laboratory management, outreach services referenced It's very different from region to region. And so we are definitely looking at growth in the specialty businesses And the health systems, and that's ongoing.

Speaker 3

And we started a new line of potential revenue, which is the pharmaceutical Business, given the fact that we have a laboratory, which can do actually biomarker Research as well as data that is very valuable to pharmaceutical biotech companies. We're exploring that obviously, I cannot I won't quantify it at this point, but it's certainly a promising line based on my knowledge of having been a Head of R and D in the major pharma company, I know that there is a huge need for that of having a reliable laboratory that supports Clinical trials and development as well as research. So those are the multiple lines of activities we're pursuing on a large front. And I would say so far so good.

Speaker 7

Excellent. Thank you and congrats again.

Operator

Our next question comes from Edward Tanalff from Piper Sandler. Please go ahead.

Speaker 8

Great. Thank you very much. And my congratulations on getting the approval, very exciting. And I know it's been a long, long pass coming. So that's great to see.

Speaker 8

My question, I'd say just had a real quick housekeeping one. Adam, I missed what you said. I think it was about R and D, Maybe 24 to what is the top end of the guidance?

Speaker 4

Hey, Ted. It's 21 to 24.

Speaker 8

21 to 24, not that awesome. And then, also just a quick accounting question. I don't believe so from the guidance that you mentioned, But the $90,000,000,000 milestone won't be recognized in the P and L in any way. Really just going to go straight to the balance sheet. Is that correct?

Speaker 4

It was in the P and L in Q2, and it's so we have a receivable recorded we'll get the cash.

Speaker 8

Oh, good. I didn't see that yet. Awesome. Great. Very stunning and looking forward to seeing growth from that Product and also great progress from the MODEX work.

Speaker 8

So thank you. Thanks, Tim.

Operator

Our next question comes from Michael Petusky from Barrington Research. Please go ahead.

Speaker 9

Question. So Adam, what and I may have missed this if you reminded people earlier, but what's the cost takeout so far at BRL

Speaker 4

Yes. So far this year, it's We had set a target of about $40,000,000 and we're about at the halfway point for that, probably a little bit ahead. Elias, I don't know if you have the specific But I know as last week we tracked it, it was just beyond the halfway point there with more to go for the throughout the rest of the year.

Speaker 3

That is correct. And remember, we took out $100,000,000 before that. Okay.

Speaker 9

All right. So given that, and I just flipped through I mean, it looks like you lost $44,000,000 at the operating line in that business, Which was actually sequentially worse than Q1. And it just feels like you're nowhere close To being sort of on track to get to breakeven in that business by year end. Can you sort of bridge? And I'm hearing the growth programs and the continuing expense reductions, but like Where does that how does that happen?

Speaker 9

Thanks.

Speaker 3

Well, I think that the maybe I could tell you some of the numbers in Q2 have one time expenses due to reduction in people. And you have the WARN Act, you have to have one time cost accounted at the time you do that. So the figure that you're mentioning is a little bit inflated because of these one time actions that we took to reduce costs, which Our cost lead in themselves. But it's a one time item. So if you really correct for that, you'll see that the progress is Much greater than that.

Speaker 3

And then when you look at the Q3, Q4 and Q1 'twenty four, because I can't tell you where we will land. We basically have to achieve $10,000,000 to $12,000,000 gap closing between The revenue line and the expense line. And we think we can reach that both from the reduction Of course, we have clear line of sight what we need to do, plus increasing capture of revenues of the existing business as we speak. And the third is obviously the growth, the profitable growth that we are Trying to not only grow, but also refine and direct towards higher contribution margins business lines.

Speaker 10

Adam?

Speaker 4

Yes. So I'll just add in, Mike, if you don't mind. So there's a couple of additional things to think about. So Elliot talked about some of the revenue cycle management initiatives that are going on at BioReference. And Those are, of course, dropped straight to the bottom line.

Speaker 4

So there's not a significant cost takeout associated with those. So As we make good progress on those, we've initiated a significant number of the programs in the first half of the year and expect to start to realize the benefits As the year continues to progress, the early days, as Elias mentioned, have shown promise. So assuming we continue to execute there, that's one area. The volume growth that we're targeting To also bring us in line, is needed. You know as well as I do that bioreference in any lab business is very, very fixed cost In nature, and you've got to bring volumes in to be absorb those fixed costs.

Speaker 4

So the incremental Contribution for an additional dollar of revenue is it absorbs $0.80 or so is absorbed Into the fixed cost structure, only 20% variable cost. So meaningful contributions from the growth initiatives That Elias walked through earlier. And then finally, the benefit as we also talked about the nonrecurring costs that occurred during the second quarter and really in the first half of the year as we right The organization, we're going to see those benefits as we continue on a monthly basis throughout the remainder of the year.

Speaker 9

Could I just ask you, so on the sort of that one time nonrecurring stuff, I mean, if you were to give yourselves full credit for that, Is the 44 really something closer to 30 or 35 or like the loss of the operating line? I mean, what magnitude are talking about in terms of nonrecurring?

Speaker 4

During the Q2, we didn't get the benefits from the nonrecurring costs because most of them came in late in Q2, but it's in the magnitude of about $8,000,000 on a gross basis.

Speaker 9

So that takes you down to 36. I guess let me ask this question. What level of revenue do you have to be at based on what you think you take out terms of cost and the benefits of revenue cycle management, what level of revenue do you have to be at the end of this year, early next year in that business to sort Be breakeven. What's the top line growth assumption that gets you there?

Speaker 4

Yes. So it comes again, it's not just volume, Mike. So volume growth has got to come, But the dollars associated with the growth is probably more important to get us to breakeven. So it's going to depend on how We would sit back and say if we can achieve our guidance that we've The top end of our guidance that we provided in this quarter and continue to see that level of growth, it will get us breakeven, as Elias mentioned, late Q4, early Q1.

Speaker 5

That to be sort of

Speaker 9

a $600,000,000 annual run rate?

Speaker 6

That's right.

Operator

Our next question comes from Yale Jen from Laidlaw and Company. Please go ahead.

Speaker 10

Good afternoon and thanks for taking the questions. And I apologize I came in late. So if some of the questions have been answered, I apologize for re asking that. So My first question is in terms of Ingenla, in terms of the revenue Going forward, when you guys may be able to start to break it to a separate line in reporting

Speaker 4

Yes. So Yale, thanks for the question. Again, we once it becomes material, we're going to start It's in the $5,000,000 to $10,000,000 guide that we had for our other revenue lines. So it's included in there, so you can get the scale. We think With Pfizer's launch coming in the next couple of weeks, it should be as early as next quarter that we start breaking it out.

Speaker 4

But at this point, we haven't.

Speaker 10

Okay, great. And maybe just one more question here in terms of MODA X. The collaboration With Merck for the vaccine, could you give us a little bit update in terms where things are? And Is there any projections as when does my start the human studies? Thanks.

Speaker 3

Thank you. So with Merck, we're working very well and collaborating, I would say, in a very effective way. As you know, we received an upfront payment and Merck covers the cost of our current work, which is designed to bring The product to an IND together. There are some unknowns that relate to the choice of Adjuvant for the vaccine that we need to test out, those can be short or can be 6 months, I don't know. That's the unknown.

Speaker 3

But clearly, if you look at the natural evolution of such a program, we should be in the clinic by next year, For sure, in my mind. But this is plusminus 6 months or plusminus 8 months depending on how things are going, but it's going well. So that's what we're hoping for, to get into the clinic as soon as we can.

Speaker 10

Okay, great. Well, appreciate it. And again, congrats on the progress and look forward to speaking with you, Tyson.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Doctor. Philip Frost for any closing remarks.

Speaker 2

Well, I'd like to thank you all for attending the conference, and we look forward to Meeting with you again at the end of next quarter. Thank you again.

Speaker 7

Thank you.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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OPKO Health Q2 2023
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