OPKO Health Q4 2023 Earnings Call Transcript

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February 27, 2024

There are 9 speakers on the call.

Operator

Good day, and welcome to the OpcoHealth 4th Quarter 2023 Financial Results Conference Call. All participants will be in a listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Yvonne Briggs. Please go ahead.

Speaker 1

Thank you, operator. 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 Q4 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 could materially affect the company's expected results.

Speaker 1

Those 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 2023 and in subsequently filed SEC reports. This conference call contains time sensitive information that is accurate only as of the date of the live broadcast, February 27, 2024. Except as required by law, OpCo 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 for today's call. Doctor.

Speaker 1

Philip Frost, Chairman and Chief Executive Officer, will open the call. Doctor. Elias Serhouni, Vice Chairman and President, will then provide an overview of OpCo's Pharmaceutical business as well as BioReference Health. After that, Adam Logow, OpCo's CFO, will review the company's Q4 financial results and then we'll open up the call to questions. Now I'd like to turn the call over to Doctor.

Speaker 1

Frost.

Speaker 2

Good afternoon, and thank you for joining us today. 2023 was a year of significant achievement for OpCo, and we expect continued progress in 2024. In 2023, INGENLA, our long acting growth hormone therapy, was approved by the FDA for sale in the U. S, the largest growth hormone market in the world. Pfizer, our global commercial partner, has now launched Nezentlich in over 40 markets worldwide, and we're optimistic about Pfizer's ability to convert users through the weekly injection from the daily to further penetrate this growing $5,500,000,000 market.

Speaker 2

Boadex made great strides last year, in particular in executing its strategy to secure important collaborations to advance its multi specific biologics platform into the clinic. These collaborations provide non dilutive funding to advance a unique pipeline to commercial realization. Specifically, last March, we announced an exclusive worldwide license and collaboration agreement with Merck to develop MODEX's nanoparticle vaccine candidate against Epstein Barr virus. We received a sizable up front payment and are eligible for milestone and royalty payments. In September, MODEX was awarded a contract from the Biomedical Advanced Research and Development Authority, known as BARDA, to develop novel, multispecific antibodies against viruses that cause infectious diseases deemed to be public health threats.

Speaker 2

The BARDA contract included an initial payment to develop multi specific antibodies to treat and prevent COVID-nineteen, and additional funding may be available to develop multispecific antibodies targeting other viral pathogens such as influenza. Elias will provide more detail on those programs. Sales of RAYALDEE are a drug to treat chronic kidney disease patients with elevated parathyroid hormone and low vitamin D levels grew 13% last year, and we're expecting further progress this year. We're gathering data, which indicate that RAYALDEE may slow chronic kidney disease progression. Some of you have been asking about my longtime enthusiasm for our once weekly OXINthamodulin product to treat type 2 diabetes and obesity.

Speaker 2

You'll remember that we had completed a successful Phase 2 trial, achieving significant weight loss, lowering of serum cholesterol and triglycerides and lowered A1C levels. We delayed a Phase III trial when other products appeared, which provided greater weight loss. Noting the great commercial success of these products, we decided to have a closer look at ours. The polyethylene glycol PEG added to our base peptide to increase its half life is large and bulky and increased the viscosity of the injection, which limited the maximum dose administered, which is related to the amount of weight loss. We've now found a substitute for PEG, which makes our molecule size similar to those on the market.

Speaker 2

With guarded optimism, we're in early stages of preclinical evaluation of this product. Switching to our international business, Opcoa, Ibero America, FinTech and Ergen are all doing well. Turning to BioReference Health. Our team has worked hard to improve our cost structure and enhance revenue. In addition to our expense reduction efforts, BioReference has been aiming to drive growth in higher value segments with new tests, larger customers and better insurance reimbursement.

Speaker 2

We are laser focused on returning this segment to profitability in the near term, and again, Elias will provide more detail. With that overview, I'll turn it over to Elias.

Speaker 3

Thank you, Phil, and good afternoon, everyone. As Phil mentioned, last year was quite eventful for both of our operating segments of Covel. And guilea launches in all major global markets as mentioned by Phil is progressing well and we believe this drug is well positioned for significant growth. Its next generation molecule active therapies administered once a week and not daily and assist in easing the burden, especially for the pediatric market and increases medication adherence. And Gena annual growth is anticipated to be in excess of 12%.

Speaker 3

But as part of our partnership with Pfizer, UPCO is anti LO to an additional $100,000,000 milestone payments associated with approvals for an adult indication for growth hormone deficiency and additional pediatric indications. These are global registration strategies underway for the adult application and other pediatric indications, which are currently in Phase 3 clinical trials. Phil also mentioned our success last year, securing collaborations for MODEX Therapeutics with BARDA and Merck. Most recently with BARDA, we secured an initial $59,000,000 grant to fund R and D and clinical evaluation through a Phase 1 study of our multi specific antibodies against known variants of SARS CoV-two for the treatment as well as prevention of COVID-nineteen, which remains a particular threat, especially for immunocompromised patients. Additional funding of up to $109,000,000 based upon the achievement of certain milestones in the first phase may be available from BARDA to develop more multi specific antibodies targeting other viral pathogens such as influenza.

Speaker 3

And as part of the research program, gene based delivery methods for the multi specific antibodies will be developed using mRNA or DNA vectors to supplement the body's natural product, protein production processes and hopefully provide BARDA with a platform that can be used very quickly for any emerging collaboration with Merck to develop MDX-two thousand two hundred and one, which is our Epstein Barr virus multivalent nanoparticle vaccine. We received the $50,000,000 upfront payment for the license of this vaccine with a potential $872,500,000 in development and commercial milestones and scaled royalties on global sales, ranging from single digit to double digit percentages. This program truly leverages MODEC's nanoparticle based vaccine platform, which enables simultaneous immunization against several major EBV proteins, in this case, 4 major EBV proteins, but the platform itself has the potential to in fact address multiple antigens against multiple viral diseases. The market opportunity here is quite large as the Epstein Barr virus affects up to 95% of the global adult population during their lifetime. Moreover, there are over 260,000 cancer cases annually caused by EBV, along with an association between multiple sclerosis in this virus.

Speaker 3

We're working with Merck on IND labeled studies and we expect Phase 1 clinical trials to start later this year. To round out our MODX pipeline, we have partnered with the NIH to develop an antiviral multispecific antibody focused on the treatment and prevention of HIV. We've had success with our 1st generation candidate in the Phase 1 trial and we are moving forward with a more potent next generation tetraspecific antibody versus the previous tri specific one. We believe there is an unmet need for a therapy that can provide long acting protection treatment for patients who require options beyond small molecule based therapies. And lastly, our immuno oncology programs are focused on hard to treat solid tumors, as well as liquid tumors such as leukemias and naphthalates.

Speaker 3

Our multi specific antibody candidates can simultaneously target several tumor integents and enable better control of immune system activation. Our tetraspecific laser program to treat solid tumors is expected to enter the clinic in the first half of this year. Now I'd like to turn to review of our Diagnostics segment by our reference health. 2023 was a transition year for our Diagnostics division, as we get closer to turning the corner to profitability. As you know, we implemented our reach initiative to reduce costs, improve efficiency and reduce productivity.

Speaker 3

For example, we've reduced our headcount by 8% or 252 headcount in 2023. In parallel, we're driving growth in various testing segments, including our higher value specialty segments like oncology, women's health and the urology, primarily through our proprietary 4kscore test. The 4kscore test volume has continued to perform and we expect these volumes to continue as the test was included in the 2023 American Neurology Association and the NCNN guidelines for early detection of prostate cancer and for follow-up after PSA screening and for initial and repeat biopsy risk stratification. In addition, we expect that the recent expansion of insurance coverage will continue to bolster levels this year. GenPath continued to launch innovative testing, including an expanded hematologic malignancy panel and introducing several new tests in the market that will sustain growth of the Genpap Oncology products.

Speaker 3

Other advances have been made over the 2023 years. For example, we have signed over 300 new accounts in Q4 of 2023 with over 40,000 accessions, additional accessions. And we've also signed major oncology groups like the Virginia Oncology group with 90 oncologists, which is a component of U. S. Oncology that started in November.

Speaker 3

So in summary, BioReference Health made great progress last year and we expect to continue to build on these achievements in 2024. We narrowed our operating loss sequentially and to both expense reduction and revenue growth, we continue to feel confident that these efforts will further improve financial metrics and return this segment to profitability in the next few years. I will now turn the call over to Adam Logano to discuss our Q4 financial results. Adam?

Speaker 4

Thank you, Elias. Starting with our Pharmaceutical segment, revenue increased to $57,700,000 for the Q4 of 2023 from $46,000,000 for the comparable period of 2022. Revenue from products, including our international pharmaceutical businesses and RAYALDEE increased by $5,100,000 reflecting from improvements in the number of prescriptions and in overall net price. Further, revenue increased as a result of gross profit share payments from Pfizer due to the global launch of Ingenla, resulting in $12,200,000 of revenue during the quarter. The 4th quarter revenue includes a catch up payment for the U.

Speaker 4

S. Market related to the 3rd quarter of $3,100,000 As I mentioned last quarter, the U. S. Launch occurred mid August and Pfizer was delayed in reporting our gross profit share amounts. And as a result, were included in our Q3 results.

Speaker 4

Costs and expenses were $73,800,000 for the Q4 of 2023 compared to $68,000,000 for the 2022 period. Research and development expenses for the Q4 of 'twenty 3 were $18,700,000 compared to $16,600,000 for the comparable period of 2022. This increase reflects activities for programs, partially offset by decreased spending on Ingenla as well as an R and D tax credit for our Irish activities. The resulting operating loss for the quarter ended December 31, 2023 was $16,000,000 a $6,000,000 improvement from the operating loss of $22,000,000 for the Q4 of 2022. Amortization expenses related to intangible assets were $16,400,000 $16,500,000 for the 2023 2022 4th quarters, respectively.

Speaker 4

Moving to our Diagnostics segment. We reported revenue for Q4 2023 of $124,200,000 compared with $139,400,000 for the 2022 period. This decline primarily reflects lower COVID testing of $7,100,000 well as a change to our estimated collections of $8,100,000 partially offset by increased testing volumes. Cost and expenses increased to $166,400,000 for the Q4 of 2023 from 162.5 dollars for the 2022 period. Operating loss for our Diagnostics segment included a change in estimated collections as well as approximately $4,700,000 of nonrecurring costs related to employee severance and retention programs associated with our efforts to return to profitability.

Speaker 4

Depreciation and amortization expense were $8,100,000 $8,700,000 for the 2023 2022 periods, respectively. Turning to our consolidated financial results. For the Q4 of 2023, we reported an operating loss of $69,100,000 compared to an operating loss of $55,300,000 for the 2022 quarter. Net loss for the Q4 of 2023 was $66,500,000 or $0.09 per share, which compares with a net loss of $85,200,000 or $0.11 per share for the 2022 quarter, reflecting lower noncash mark to market losses related to our investment in GeneDx. I'd like to briefly comment on our balance sheet and the recently completed refinancing of our convertible debt.

Speaker 4

On December 31, we had 2 convertible debt issuances that were set to mature in early 2025. Our 4.5% notes, which were held by a number of institutions and our 5% notes, which were primarily held by Doctor. Frost, Doctor. Shao and a long term investor of OpCo. In consultation with our advisors at JPMorgan, we chose to issue new 5 year notes, reducing our coupon interest rate to 3.75 percent and took advantage of the strong demand from institutional investors to raise a total of $230,000,000 We used the proceeds to buy back the outstanding 4.5 percent notes and the 55,000,000 shares of our common stock, and we added approximately $25,000,000 in cash to our balance sheet.

Speaker 4

Our 5% note holders exchanged their principal and accrued interest of approximately $71,100,000 into notes with identical financial terms as the 3.75 percent noteholders. This refinancing strengthened our balance sheet, reduced the number of shares outstanding and provided the company with additional cash to fund our ongoing development activities. The offering was oversubscribed and brought in an impressive group of new prominent investors to OpCo. During 2024, we anticipate receipt of additional non dilutive cash payments on our existing collaborations with Merck, BARDA and other potential transactions as the year progresses. As we look ahead, we're providing the following financial guidance with the following assumptions.

Speaker 4

For our Pharmaceutical segment, there are a number of factors that impact our gross profit share payments from Pfizer, including revenue from product sales of Genotropin, Anagen, and Engenla. Global sales of Genotropin for 2023, as reported by Pfizer, were $539,000,000 Pfizer has not separately reported sales of Ingenla. However, we have observed consistent prescription growth globally for Ingenla as reported by IQVIA and Symphony. As such, for the full year, we estimate our gross profit share will be between $40,000,000 $50,000,000 although we anticipate that a number of scenarios may impact sales of genetropin and Ingenla globally. We assume a stable foreign exchange rate for ex U.

Speaker 4

S. Pharmaceutical businesses, which will allow for continued and profitable growth. R and D expenses for the Q1 of 2024 will reflect higher activities related to our MODEX programs, including CMC and efforts related to the initiation of our FUSE first immuno oncology clinical trial. Those increased activities will be partially funded through our BARDA agreement and partially offset by lower R and D costs related to the wind down of our clinical operations for the ongoing open label pediatric extension study for Ingenla, which we expect to substantially complete by the end of the Q1. For our Diagnostics segment, as Elias outlined, we are diligently working to align the business to achieve cash flow breakeven by the middle of 2024 and profitability by the end of the year.

Speaker 4

This work includes consolidating our geographic footprint and rationalizing our test offerings. As a result, we expect our client mix to improve and cost structure to appropriately support our go forward strategy. During this transition phase, we expect consistent core testing volumes with a slight increase in the average per patient collection amounts due to our revenue cycle management initiatives, partially offset by volume impact due to several weather events that occurred during the already. Before considering any nonrecurring costs that may result from our restructuring activities, we expect our costs and expenses to decline sequentially by $7,000,000 to approximately $159,000,000 As a result, we expect the following for the Q1 of 2024. Total revenues between $180,000,000 $185,000,000 revenue from services between $126,000,000 $130,000,000 revenue from product sales between $36,000,000 $40,000,000 and other revenue between $14,000,000 $18,000,000 inclusive of the estimated Pfizer gross profit share payments between $9,000,000 $11,000,000 We expect Q1 costs and expenses to be between $235,000,000 $29,000,000 dependent on the timing for certain CMC activities for our MODEX programs and depreciation and amortization expense of $26,000,000 That concludes our prepared remarks, and thank you for your attention.

Speaker 4

Operator, let's open the call for questions.

Operator

And our first question comes from Jeffrey Cohen of Ladenburg. Please go ahead.

Speaker 5

Good afternoon, everyone. Thanks for taking our questions. I guess, first, Adam, could you just recap on your finances with regard to the 4.5% 5% instruments out there. So currently then share count is down toward approximately 700 and then what would be appropriate cash and debt levels be of when we're estimating pro form a?

Speaker 4

Yes. So we ended the year with $95,000,000 in cash. So if you pro form a in the additional $25,000,000 that would put us right at about 120,000,000 in cash on a pro form a basis. The total convertible notes were just over $300,000,000 So just right at $300,000,000 in principle. And you've got the share count right with the Okay.

Speaker 5

Okay, perfect. Got it. Could one of you discuss a little bit about the press release with regard to the Alibaba global platform in China and talk about perhaps some of the products that you're planning on offering and what would we should expect as far as the status during 'twenty

Speaker 2

four? The products involved are made by our Irish company and I'm sorry, by our Spanish company and are primarily nutritional products for animals, for which there appears to be a large market in China. And it is just beginning. So there's not much else to say about it.

Speaker 5

Okay, got it. And then lastly for us, did you provide any commentary on general and daily going to weekly and what you've learned or what Pfizer's learned perhaps versus what's anticipated as far as costs and transferring to patients from one to the other, new patients and how that may look over the coming year?

Speaker 4

I'll start off, Jeff. So I think what we've seen in the markets that are the most mature from Pfizer, where they launched initially, as good steady growth in the conversion is happening broadly. I think with one of the competitors launching a bit earlier in the U. S. Market, we've seen that conversion happen similarly to what we've seen globally.

Speaker 4

We expect that to continue and accelerate as Pfizer enters the market as well as if Novo eventually enters the market with their long acting products. So the conversions are happening and we expect those to accelerate over the next 18 to 24 months.

Speaker 5

Okay, perfect. And then lastly, on reality, It sounds like you're expecting growth and it looks like Q4 had some strong growth. Could you identify for us where they may be coming from either demographically or geographically or pricing wise and what we should expect for that?

Speaker 4

Charlie is there, you

Speaker 3

want to go ahead and Yes, happy to do that. So we're seeing growth for a number of reasons with the reality brand. First is the obvious passing of the adverse effects of the pandemic, which slowed the ability of our sales force to get into clinics promote the brand and it also slowed the ability of patients to get into the clinics to get prescriptions. That seems to have abated as of the beginning of Q2 of last year. In addition, our sales force is much more adept now at moving the product into areas of business that have low co pays.

Speaker 3

This would include the Medicaid sector, this includes the low income subsidy Medicare Part D patients, and it also includes the commercial patients who have 0 co pay. So these are the main drivers of the growth in the business.

Speaker 5

Okay, got it. It seems like it's on a missed trajectory post COVID currently. Okay, I think that does it for us. Thanks for taking all the questions.

Speaker 2

Thanks, Jeff.

Operator

The next question comes from Maury Raycroft of Jefferies. Please go ahead.

Speaker 6

Hi, thanks for taking our questions. I was wondering if you can talk more about timing and next steps for angenla label expansions for the adult setting and additional pediatric indications?

Speaker 3

Yes, quickly. The adult indication, basically, we're in the process with Pfizer, obviously, to put our application to the FDA. And as I mentioned in my comments, we're in towards the end of Phase 3 for the pediatric indication. So timing wise, probably the end of the year, beginning of next year for the adult and probably early next year for the pediatrics if I if everything goes well.

Speaker 6

Got it. Okay. And then for profit share with Pfizer, just wanted to make sure I heard this correctly that the guidance for 2024 is $40,000,000 to $50,000,000 Is that right? And wondering if there are more details you can provide on the profit share currently and how that will change as in general it takes more market share from Genotropin? And what would a peak profit share percent look like?

Speaker 4

Sure. So, Maury, the way so the 40% to 50% are correct is the full year guide based on the information we know today, right? So Pfizer doesn't separately forecast out in general or genotrope in sales. So we're using our internal models to calculate what we anticipate the franchise revenues to be globally. And then we apply the various tables that we have to come up with our estimated calculation.

Speaker 4

So we've got some conservatism built into that with some uncertainty on the daily portion for Genotropin and a modest growth rates that we would expect for Ingenla. So you've got the $40,000,000 to $50,000,000 right. So in the Q4, if you take out the Q3 catch up, we had about $9,000,000 in gross profit share payments. So when you think about that modest growth that we're forecasting in the gross profit share, you can see what that math kind of looks like overall. When we look out at peak, when you look at the growth hormone franchise as a whole, so the combination of Ingenla and Genotropin, And when the product is at its peak where we think the peak could be, and I think Pfizer has stated what they think the total market potential is for Ingenla, it's a substantial revenue stream.

Speaker 4

We've estimated an effective royalty rate to be in the mid-20s on that

Speaker 6

peak. Got it. That's helpful. And maybe last question just on oxycodimodulin. If you could talk about timelines for the new formulation and what would a clinical development path look like there?

Speaker 6

And is this something you're going to keep in house or partner out and does LeaderMed have any rights to this program?

Speaker 2

I think with respect to both of those questions, it's early. We'll get back to you as soon as we have something more definitive to talk about. Understood.

Speaker 6

Okay, thanks for taking my questions.

Speaker 4

Thanks, Maury.

Operator

The next question comes from Edward Tenthoff of Piper Sandler. Please go ahead.

Speaker 7

Great. Good evening, everyone. So two quick questions, if I may. Firstly, just at a high level with respect to Engenla versus SKYDROBA, what are the differences that Pfizer is pushing in terms of marketing? Or is it really just a land grab at this point where they're going to the genotropin clients and converting them over and basically trying to get into as many other accounts as possible?

Speaker 7

And then the second question really for Phil, high level as bio reference in the diagnostic business returns to breakeven, is the plan here still to keep that as part of OpCo or potentially to monetize it how you have for some of the other diagnostic segmentsproducts? Do you ultimately see this business being pharma and diagnostic going forward? Thanks.

Speaker 2

Well, for those of you who know me, you realize that 1st and foremost, we will always do what's in the best interest in the of the shareholders in terms of creating value. So at a particular point in time, if one approach seems advisable, we'll certainly consider it seriously. I don't want to be more specific than that right now. But it's clear that we have an asset on our books that is, at the moment losing money, although we're very optimistic about turning that around, that has inherent value as an asset. And so we're very mindful of that, be assured.

Speaker 7

Yes. Thank you. And then on the competition and sort of a little bit more on the marketing in the long acting or weekly tumor growth? Thanks. Yes.

Speaker 4

So obviously, Pfizer is leading the charge on the commercial efforts. So where we think that they are going to be very successful is in the near term is where they're alone in the market, right? So when you think about the Japanese market, which is a substantial market in for the growth hormone space where they're by themselves currently, They've had meaningful market share penetration and continued growth. And there's a number of other countries where they're by themselves. They've done a great job marketing throughout Europe as well and enforcing the conversion or suggesting the conversion there as well.

Speaker 4

On the U. S. Market, it's they've got access commercially to a strong number of plans. We think they're well positioned with their team to go ahead and take substantial share in the U. S.

Speaker 4

As well. As far as how they're going to go about that, I think that's a question for Pfizer to answer.

Speaker 7

Okay, great. Thank you, guys.

Operator

The next question comes from Yi Chen of H. C. Wainwright and Co. Please go ahead. Yi, your line is open.

Operator

Are you muted on your end?

Speaker 3

Hello?

Speaker 7

Hey, Gabe,

Speaker 4

we can hear you now.

Speaker 8

Sorry about that. So regarding the storefront on Alibaba, can you talk about the potential market size that UPCO can target and what is the potential revenue contribution in 2024 and how is the current economic environment could affect your market prospects in China? Thank

Speaker 2

you. This is a product line that is very successful, is sold by our Spanish unit. They manufacture the products, develop the products and have done so well that they're beginning to expand into France, as a matter of fact, and have every intention to continue to expand geographically. We were approached by a company that has a partnership with Alibaba and thinking that because of the tremendous interest in pet animals now in China and because such products as we have are successful that we might be willing to let them distribute them through Alibaba in China. And we said, why not?

Speaker 2

And that's where we are now. It's just getting launched. So it's too early to say much more about the market size for our products as sold by Alibaba. It's a wait and see situation.

Speaker 8

So it's strictly animal health products, right? There are no human products offered at this conference?

Speaker 3

Sorry?

Speaker 4

So there's a combination of human health and veterinary products that will eventually go on the platform. Right.

Speaker 2

Well, we'd like to certainly thank you for participating in today's session, and we hope you'll be with us again when we report the Q1 results. Thank you.

Operator

The conference has now concluded. Thank you for

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