Q3 2021 OPKO Health Inc Earnings Call

October 28, 2021

Good day, ladies and gentlemen, and welcome to the Opco Health, Inc. Third quarter 2021 financial results conference call.

At this time all participant lines are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time to ask a question you would need to press Star then one on your telephone.

As a reminder, this call is being recorded.

Anyone should require operator assistance. Please press Star then zero I would now like to hand, the conference over to your host today Vonk brakes. Please go ahead.

Thank you Sarah and good afternoon. This is Yvonne Briggs with L. A J. Thank you all for joining today's call to discuss Opco 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.

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.

Shortly 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 <unk> 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 <unk> Executive Vice President will provide a business update and pipeline review and then Dr. Jon Cohen will discuss bio reference laboratories.

After that Adam local Opco 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.

Yeah.

I'll start with a pharmaceutical business.

Yeah.

Sure.

Good afternoon.

Thank you for joining the call today.

I'll start with our pharmaceutical business.

We're pleased with Pfizer's, Canada.

This press release within the last hour, indicating that Canada has become the first country to approve and during the war Sumatra guns 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 somebody who can continue to advance in other territories with the U S European and Japanese action dates expected during the first half.

Our 2022.

Yeah.

We continue to execute strategic partnerships for our pipeline and technologies as an official way to have projects that we considered valuable.

Funded by others.

At the same time provides for the eventual distribution, particularly abroad.

During our last call we discussed the deal with Nicoya therapeutics for a reality in China, and another with <unk> therapeutics for Integra and that technology for rare genetic disorders.

This past quarter, we announced one with greater made group Rock Center module and in fact are seven C. D. P. In.

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 the issuance.

We announced completion of enrollment in our phase two trial with three aldi in COVID-19 patients.

We believe Realogy is the best option for raising.

25, D who are both 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.

Bio reference laboratories core clinical business continues to return to pre pandemic levels.

With most physician accounts close to 2019 volumes.

Our specialty diagnostics business is growing in our four focus areas of oncology women's health urology and strategic partnerships.

Well last quarter BRL announced the acquisition of the U S. <unk> centralized laboratory prenatal testing business.

From Roche.

This complements <unk> president offering a noninvasive prenatal screening.

The growth of skull helps home blood drawing service continues.

We've added many new clients and skull or is now available.

So 80% of the U S population.

BRL COVID-19 testing for surveillance and screening with our sports foreigners 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-19 testing business.

Retail testing of the journal public which wiped in August and September with the spread of the Delta Varian is now decreasing.

The Delta surge as we come to one.

I'll now turn the call over to Steve Rubin, who further term serving 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.

<unk> core business returns to pre pandemic volumes of.

Of course, we are particularly excited about the approval from health, Canada agenda. So much rogen for pediatric growth hormone deficiency and Jim is a once weekly long acting recombinant human growth hormone for the long term treatment of pediatric patients who have growth failure due to inadequate secretion of <unk>.

<unk> growth hormone on watching on its growth hormone deficiency or ph D.

In general our provides pediatric patients their loved ones and care providers with a treatment option that reduces the treatment frequency for children from daily injections to once weekly injections.

Our global regulatory applications for somewhat shortly and 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 Soma trucking with premium of GHT.

Under this agreement <unk> is eligible to receive up to 275 million upon achievement of certain milestones.

Ranging from 20 million to $90 million. These.

These milestones are triggered by regulatory approval in the U S.

Regulatory and pricing determinations and other major markets. In addition, upon launching the primary regions of the U S Europe and Japan.

<unk> College of regional tiered gross profit sharing on sales about so much rogen and Pfizer's daily Ghd drug Janet dropping.

Pending commencement of a profit sharing term within a region, we are entitled to tiered double digit royalties on sales of Soma within such region.

Moving to reality or treatment for secondary hyperparathyroidism in adults with stage, three or four chronic kidney disease and low vitamin D levels the numbers for the quarter breakdown as follows.

Total prescriptions for reorder in Q3 2021 as reported by <unk> were approximately 11500, representing a decrease from approximately 16700 in Q3 of 2020.

All of these sales continued to be impacted by pandemic related challenges and onboarding new patients. Although we believe the downward trend in sales has bottomed out and are starting to reverse.

New patient starts decreased by two 3% in Q3 versus Q2.

Since the product was launched nearly 28000 patients who've had reality prescribed by approximately 3900 positions.

More than 140 positions or nearly 8% of the total number of prescribers.

New reality prescribers in Q3.

And as Phil mentioned in late August, we announced completion of enrollment in our phase II trial with reality to treat COVID-19, outpatient final enrollment totaled 171 subjects and the last subject exited the study earlier this month.

The rescue trials randomize symptomatic COVID-19 patients in a one to one ratio to four weeks of treatment with biology or placebo in a two week follow up.

The primary efficacy endpoints include raising and maintain serum total 25 hydroxy vitamin D to 50 to 100 nanogram per Mil and a time to resolution of COVID-19 symptoms as self reported by each day by subjects using a validated questionnaire.

Secondary endpoints include incidence of emergency room, or urgent care visits oxygen saturation below 94% need for integration of hospitalization and requirement for medical mechanical ventilation fatality rate and severity.

Finally duration of illness, as evidenced by quality of life and biochemical measures.

Topline 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 leading that group to develop manufacture and commercialize X into March one and factored <unk> in greater China, and other Asian territories Opco holds a 47% ownership interest in the joint venture.

Opco 80, 802, or three it's an auction to module analog being developed for the treatment of obesity and diabetes.

With Doctor 700, a CDP is a novel long acting coagulation factor being developed to treat hemophilia.

<unk> will be responsible for funding the joint Venture's operations development and commercial as commercialization efforts and made an initial investment of $11 billion, we will retain full rights stocks into module in and factor seven http and all other geographies.

Now, let me turn the call over to Jon Cohen to discuss bio reference laboratories John.

Thanks, Steve and good afternoon everybody.

Bio reference laboratories cord clinical lab business continues to rebound to pre pandemic levels and even more so as COVID-19 cases subside.

A majority of our clinical accounts are close to normalized levels compared to 2019.

I referenced as core testing volume at the end of the third quarter was up slightly versus the prior year period.

Womens 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. Arioso centralized laboratory prenatal testing business from Roche.

<unk> noninvasive prenatal screening test called the harmony prenatal test is one of the most widely studied tests and prenatal screening and has been used in more than one 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 N Ips 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 areas that complement our current and Ips offering at Genpact.

In addition, as a result of recent eight cod guidelines that have changed to include Nics for most pregnancies. We will continue to focus on Medicaid state agencies for broader nics coverage for all pregnant women.

With significant focus and driving sales for nics and the expanded client base.

Yeah.

Got it alright.

Okay.

Got it.

With significant focus on driving sales and then Ips and the expanded client base, we see potential.

Potential to triple our current in IPF volume.

Our oncology business continues to outperform and is up 20% over prior year with growth in Ngls 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 and our hematology offering.

Our strategic partnership initiatives, including large medical groups F to hps 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 solution Scarlet health.

Scarlet offers numerous benefits for busy patients who do not have time to visit a patient service center offer homebound patients with chronic conditions, who need routine testing.

In August we were pleased to begin offering scarlet surfaces 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 we joined forces with the specialist sports performance and <unk>.

<unk> company, a reco to provide scarlet health for pre-season athlete physicals and in season testing for professional and collegiate athletes.

<unk> 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 have begun to come down again as Delta peak.

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-19 ordering those tests, either individually or in combination with our COVID-19 flu offering.

Okay.

BRL continues to perform a significant amount of surveillance testing testing as a 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 weeks.

We perform testing for over 200 cruises and started testing for Virgin cruises. This quarter. Many large employers are testing their non vaccinated employees.

In Q3, we executed new agreements to serve the NFL, the NBA and NHL for another season work.

We are currently servicing over 200 sports teams and over 30 major USA markets. In addition, we tested other large sports events, including the Chicago Marathon USA Soccer World Cup qualifiers, ATP tennis events, USGA golf USA basketball for the Olympics Premier.

Crossly.

Al lot hockey teams Formula E race car race MLS Kid's soccer camps Basketball Hall of Fame NFL Hall of Fame and stadium employee testing. In addition, we performed testing for the FCC and the Tony Awards, our point of care testing capabilities continue to play a very important role.

Covid offering as demand shifts to onsite screening year to date, we have conducted almost 800000 Covid tests 230000 co point of care in Q3.

In conjunction with Rite aid and the U S Department of Health and Human services, we announced the 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 'twenty. One 'twenty two academic year, we are pleased to be able to.

To support New York States 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 <unk> increased by more than 19% versus the prior year period, driven by our industry, leading exome testing offerings in September we announced that <unk> completed clinical genetic exome testing sequencing for more than 300000 patients may.

The company's datasets the largest of its kind in the world.

With the volume of clinical exome testing accelerating more than 40% annually G&A excess 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 two new Biopharma partnerships were sponsored testing to increase access to testing and rare diseases.

These included.

Hereditary neuropathy panel to test individuals' at risk or suspected of having giant conal neuropathy in partnership with patient gene therapies, and a partnership with Crystal biotech to test for rare skin diseases.

I'll now turn it over to our CFO Adam.

Thank you John for the third quarter 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 in the 2000.

'twenty one 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 <unk> <unk> per diluted share compared to net income of $23 7 million or <unk>.

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 John 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 and health, our digital health platform that John mentioned earlier as well as increasing our <unk> 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.

<unk> from a nonrecurring $10 million payment under the cares Act total costs and expenses decreased to $320 million compared to $346 million for the 2020 period.

Moving to our pharmaceutical 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 per morality compared to $28 7 million in the 2020 period inclusive of $8 $1 million of royalty revenue rail.

<unk> 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 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 liter med and camp for transactions, Phil mentioned earlier, partially.

Set by decreased so much rogen R&D related revenue.

Operating income from our pharmaceutical 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 rally.

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 so much Oregon development program.

Our cash balance as of September 30 was $148 $6 million and we have approximately 40 $64 million of availability under our recently renewed line of credit with JP Morgan.

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 to the fourth quarter and have built in the following assumptions to our forecast we anticipate performing between one seven and two.

$2 1 million Covid PCR point of care and antibody tests during the fourth quarter.

As John mentioned, we have capacity well in excess of these levels should demand for testing increase.

Our revenue could expand beyond our guidance.

Tober, 27th we have already performed over 800000 Covid tests, so our range of guidance reflect testing demand from our physician.

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 reality, 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 and $320 million, including revenue from services of $250 million to $280 million revenue from products of $32 million to $36 million in other revenue of $4 million to $6 million we.

We expect costs and expenses to be between 303 hundred $30 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.

Is the expectation of research and development expense $17 million to $20 million with that I will open up the call for questions operator.

Thank you can I ask a question you will need to press Star then one on your telephone to withdraw your question. Please press the pound key please standby, while we compile the Q&A roster.

Our first question comes from the line of Maury Raycroft with Jefferies. Your line is now open.

Hi, This is Kevin <unk> on for Maury, Congrats on the quarter and thanks for taking my questions.

First question just on Covid testing could you contextualize how much of your revenue came from the professional sports contract.

Including the NFL versus entertainment contracts and then how these contracts affected your average reimbursement from testing.

So John I'll take it and you can jump in so we don't necessarily break it down between any individual channels.

But what I would what I'd say is about half of our volume comes from.

From our retail and physician referral business and the other half comes from the other channels at least during during the most recent quarter.

Okay, great Thanks and.

For the recently announced Sandoz pricing just wanted to get your thoughts on that.

And then what metrics that you are going to be following in their launch.

Yeah.

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

At this point.

Okay, Alright, thank you for taking my questions.

Our next question comes from the line of Edward <unk> with Piper Sandler Your line is now open.

Great.

Thank you very much.

And I said it was reality in October.

I'm wondering what format should we anticipate releasing that data when could we get that data and what would be next step. Thank you.

So thank you for that question.

In the process of.

Cleaning the data and getting.

Getting ready to lock the database it'll be some time before we actually.

Please the analysis of the final dataset.

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.

Thanks, Joe.

Our next question comes from the line of Jeffrey Cohen with Ladenburg. Your line is now open.

Hello, and thank you for taking the questions. So.

I wondered if you could talk about the.

This market will move in your commentary about.

Hopefully you're driving.

Tripled.

Growth from.

One is could you talk about the prenatal testing and scoring as far as what you're seeing and what kind of accretion.

Accretion you may see there going forward.

So I'll take the second part there.

Yeah.

Doug.

There is there is a.

Potential significant overlap between the NFC testing.

Scarlet relative to large women's health groups as you know.

One of our four major specialty areas of women's health, where we continue to have significant growth that make significant investments.

Many of those accounts quite honestly with most of those grew our are with large women's groups.

So as a result of that the overlap with Scarlet Ken can have a potentially additional effect.

Okay got it was there any milestone associated with the.

So mature and approval from Cantor Fitzgerald, and do you expect the Intel.

It should be the same in the U S as well if and when approved.

Okay.

So there was no milestone associated with it.

Canada Canadian approval and the answer is yes, we would expect the name to be the same in the U S.

Okay, perfect and then.

Good.

Adam could you just go through a little bit on the margin side. It looked like there was a tender.

90 basis points.

Feed off Arris administration looks pretty policy was there any trend there or is there any.

Specific product lines or areas to call out either on the upside or the downside.

So with it within the lab business. It was overall we saw higher.

Higher net realized prices across across the board there wasn't any one individual driver.

There. So we were it was mostly on net realized price price improvements on the cost side. It was it was pretty similar to what we've seen in the past.

On the pharmaceutical side, we did see.

Our net improvement on reality 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 we've started to realize.

Higher net price than what we've previously seen as a result of those part D patients kind of rolling off.

Okay. That's helpful and then lastly for me.

<unk> runs.

Any commentary on labor or labor issues, I know, particularly with remarks, Japan, a reference you know arguably you're touching.

<unk> are a little softer on the COVID-19 side, but anything you're experiencing there to call out over the past couple of months.

And John can add more color, but it's certainly been a been a tough labor market and staffing up.

In the lab business overall.

Did we did overcome it but it was certainly a challenge during during the third quarter.

Yes, I would say that we were.

We were moving relatively quickly by the end of May beginning of June to take out costs and a significant amount of labor because of the.

The Covid volumes as you recall started going down. We then had a U turn is the delta.

Delta hit so in that respect we had to essentially re hire.

Many people and at that point. It was it was difficult we got through it but it was a challenge for about four weeks to get enough.

People to re hire because the labor market with SOCAR.

Okay got it that's helpful. Thank you for taking our questions.

Our next question comes from the line of Yale Jen with Laidlaw <unk> Company. Your line is now open.

Good afternoon, and thanks for taking the questions.

In terms of the Covid testing.

Adam you have guided that it may be one seven.

Two 2 billion test up or the next quarter.

Do you guys see that.

I assume that did the testing will continue.

Continue for next year is the $1 seven or maybe a little lower than that could be a baseline for <unk>.

Two more quarters into 2022.

So.

The guide that we gave.

We processed over 800000 tests. So far this this month of October and we guided the one 7% to $2. One that indicates that yields were going to see a slowing of testing into the back half of the quarter.

It's really difficult to predict.

How how fast or slow the broader infection rates, we'll either grow or decline.

It's tough to say what a good baseline is for next year.

We're pretty comfortable with 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.

It's a challenge to try to predict the infection rates on a broader basis at least for us.

John I don't know if you'd add anything to add.

Yes, I think there's.

There is as Ed said.

A predictability factor I think that the.

One of the probably largest gating issue is what happens with the flu season and nobody knows.

If there is a significant flu season, youll see a significant increase in probably COVID-19 testing.

With people, who are going to want to know whether they have COVID-19 or the flu. So that's that.

It'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 and maybe John just another question on leads.

Testing testing side, which is that.

Rose.

Inquisition.

Uh huh.

What do you think it could be the impact of the <unk>.

Top line top line, maybe over the next year or next few quarters.

With this acquisition.

Yes.

I'm not going to get into what I think the actual top line revenue number will be.

And then.

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 can't comment about how quick or.

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 desk.

Well for the <unk>.

<unk>.

Pfizer indicated that additional FDA requested additional data and that's why they were pushed to the next January of next year have they provide more colors in terms of what sort of data.

FPL was requesting.

It actually wasn't.

Direct up the aircraft was a pfizer.

So wherever you are additional data based upon timing.

Trial, and it's just continuation of the study open label information.

Okay, great. Thanks, a lot I appreciate and congrats on the good quarter.

Thanks Al.

Thank you there are no further questions I will now turn the call back to Dr. <unk> for closing remarks.

Well, thank you all for participating.

And we're over excited about the approval of our growth hormone product.

Canada.

Forward to having a good improvement in other countries.

Yep.

The year goes on into early next year, possibly.

We look forward to being with you again at the end.

Over 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.

Okay.

[music].

Yes.

Okay.

Great.

[music].

Good day, ladies and gentlemen, and welcome to the Opco help Inc. Third quarter 2021 financial results conference call. At this time all participant lines are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time to ask a question you will need to press Star then one on your telephone.

As a reminder, this call is being recorded.

If anyone should require operator assistance. Please press Star then zero I would now like to hand, the conference over to your host today von brakes. Please go ahead.

Thank you Sarah and good afternoon. This is Yvonne Briggs with L. A J. Thank you all for joining today's call to discuss the Opco Health's financial results for the third quarter of 2021 I'd.

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 then 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 <unk> undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances. After the date of this call.

After that Adam logo Opco CFO will review the company's third quarter financial results and then we'll open the call to questions now.

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

Yeah.

Yes.

I'll start with our pharmaceutical business.

Yeah.

Sure.

Good afternoon.

And thank you for joining the call today.

I'll start with our pharmaceutical business, where.

We're pleased with Pfizer's, Canada.

This press release within the last hour, indicating that Canada has become the first country to approve.

During the war.

As a matter of guns 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 somebody who can continue to advance in other territories with the U S European and Japanese action dates expected during the first half.

Our 2022.

We continue to execute strategic partnerships for our pipeline technologies as an efficient way to have projects that we consider valuable funding.

Fronted by others.

At the same time provides for the eventual distribution, particularly abroad.

During our last call we discussed the deal with Nicoya therapeutics for a reality in China and another with Cam for Therapeutics, who are integral not technology for rare genetic disorders.

This past quarter, we announced one with greater media group for our sensor module and in fact, there are seven CDP and.

In China, and other Asian territories.

David will provide more detail on this transaction in a moment.

In August we announced phase.

Sure.

We announced completion of our enrollment in our phase II trial with three aldi in COVID-19 patients.

We believe Realogy is the best option for raising there.

<unk> 25, who are both 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.

Bio reference laboratories core clinical business continues to return to pre pandemic levels.

With most physician accounts close to 2019 volumes.

Our specialty diagnostics business is growing and our four focus areas oncology women's health urology and strategic partnerships.

Well last quarter BRL announced the acquisition of the U S. <unk> centralized laboratory prenatal testing business.

From Roche.

This complements <unk> president offering a noninvasive prenatal screening.

The growth of skull House home blood drawing service continues.

We've added many new clients and skull or is now available to 80% of the U S population.

BRL COVID-19 testing for surveillance and screening with our sports foreigners 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-19 testing business.

Retail testing of the general public which wiped in August and September with the spread of the Delta Varian is now decreasing.

Is the Delta surge as we got into one.

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

<unk> core business returns to pre pandemic volumes.

Of course, we are particularly excited about the approval from health, Canada agenda, so much Oregon for pediatric growth hormone deficiency in general is a once weekly long acting recombinant human growth hormone for the long term treatment of <unk>.

The active patients who have growth failure due to inadequate secretion of endogenous growth hormone, otherwise known as growth hormone deficiency or ghd.

Our global regulatory applications for summit trial and 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 summit drug for the treatment of GHT.

Under this agreement <unk> is eligible to receive up to 275 million upon achievement of certain milestones.

Ranging from 20 million to $90 million. These.

These milestones are triggered by regulatory approval in the U S.

Regulatory and pricing determinations and other major markets. In addition, upon launch and the primary regions of the U S Europe, and Japan Oriel College of regional tiered gross profit sharing on sales about so much rogen and Pfizer's daily Ghd drug Gina dropping.

Pending commencement of a profit sharing term within a region, we're entitled to tiered double digit royalties on sales of cemetery within such region.

Moving to reality or treatment for the secondary hyperparathyroidism in adults with stage three or four quite a kidney disease at low vitamin D levels the numbers for the quarter breakdown as follows.

Total prescriptions for reorder in Q3 2021 as reported by <unk> were approximately.

11500, representing a decrease from approximately 16700 in Q3 of 2020.

<unk> sales continued to be impacted by pandemic related challenges and onboarding new patients. Although we believe the downward trend in sales has bottomed out and is starting to reverse.

New patient starts decreased by two 3% in Q3 versus Q2.

Since the product was launched nearly 28000 patients have had reality prescribed by approximately 3900 positions.

More than 140 positions or nearly 8% of the total number of prescribers.

New reality prescribers in Q3.

The rescue trial randomized symptomatic COVID-19 patients in a one to one ratio to four weeks of treatment with biology or placebo in a two week follow up.

Secondary endpoints include incidence of emergency room, or urgent care visits oxygen saturation below 94% need for and duration of hospitalization and requirement for medical mechanical ventilation chaldee rate and severity.

Finally duration of illness, as evidenced by quality of life and biochemical measures.

Topline 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 leading that group to develop manufacture and commercialize X into March one and factor <unk> in greater China, and other Asian territories alcohol as a 47% ownership interest in the joint venture.

Opco 80, 802, or three it's an auction to module analog being developed for the treatment of obesity and diabetes.

With Doctor 700, a CDP is a novel long acting coagulation factor being developed to treat hemophilia.

Now, let me turn the call over to Jon Cohen to discuss bio reference laboratories John.

Thanks, Steve and good afternoon everybody.

Bio reference laboratories cord clinical lab business continues to rebound to pre pandemic levels and even more so as COVID-19 cases subside.

A majority of our clinical accounts are close to normalized levels compared to 2019.

I referenced as core testing volume at the end of the third quarter was up slightly versus the prior year period.

Womens 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 areas centralized laboratory prenatal testing business from Roche.

Joseph Noninvasive prenatal screening test called the harmony prenatal test is one of the most widely studied tests and prenatal screening and has been used in more than one 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 N Ips test assesses the risk of Tri 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 areas that complements our current nics offering at Genpact.

In addition, as a result of recent a cod guidelines that have changed to include Nics for most pregnancies. We will continue to focus on Medicaid state agencies for broader and IPF coverage for all pregnant women.

With significant focus in driving sales and Ips and the expanded client base.

Yeah.

Got it alright.

Okay.

Got it.

With significant focus on driving sales and in Ips and the expanded client base, we see potential.

Potential to triple our current NII volume.

Our strategic partnership initiatives, including large medical groups <unk> accountable care organizations and health systems continues to grow with significant strong performance and 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 solution Scarlet health.

Scarlet offers numerous benefits for busy patients who do not have time to visit a patient service center offer homebound patients with chronic conditions, who need routine testing.

Marker company Ah Reco to provide Scarlet health were pre season athlete physicals and in season testing for professional and collegiate athletes.

<unk> health is now available to 80% of the U S population.

Now I would like to address our Covid testing services.

The third quarter, we performed $2 2 million COVID-19 PCR tests.

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-19 ordering those tests, either individually or in combination with our COVID-19 flu offering.

Okay.

BRL continues to perform a significant amount of surveillance testing testing as a 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 perform testing for over 200 cruises and started testing for Virgin cruises this quarter.

Many large employers are testing their non vaccinated employees.

In Q3, we executed new agreements to serve the NFL, the NBA and NHL for another season.

We are currently servicing over 200 sports teams and over 30 major USA markets. In addition, we test other large sports events, including the Chicago Marathon USA Soccer World Cup qualifiers, ATP tennis events, USGA golf USA basketball for the Olympics Premier.

Lacrosse League NHL hockey teams Formula E race car race MLS Kid's soccer camps Basketball Hall of Fame NFL Hall of Fame and stadium employee testing. In addition, we performed testing for the FCC and the Tony Awards, our point of care testing capabilities continue.

To play a very important role in our COVID-19 offerings as demand shifts to onsite screening year to date, we have conducted almost 800000 Covid tests 230000 pure point of care in Q3.

In conjunction with Rite aid and the U S Department of Health and Human services, we announced the back to school COVID-19 program to offer students a public schools across the state of New York the opportunity for free COVID-19 testing prior to the start of the 'twenty. One 'twenty two academic year, we are pleased to be able to.

To support New York States active surveillance programs with this initiative. In addition, we continue to have strong demand for our school testing program around the country.

The company's dataset the largest of its kind in the world.

The team also added two new Biopharma partnerships were sponsored testing to increase access to testing and rare diseases.

These included.

Hereditary neuropathy panel to test individuals' at risk or suspected of having giant <unk> neuropathy in partnership with patient gene therapies, and a partnership with Crystal biotech to test for rare skin diseases.

I'll now turn it over to our CFO Adam.

Both of our operating segments reported operating income in 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 <unk> <unk> per diluted share compared.

Net income of $23 7 million or <unk>.

Per diluted share during the 2020 period.

We continue to invest in our commercial organization, including Scarlet and health, our digital health platform that John mentioned earlier as well as increasing our <unk> commercial team.

<unk> from a nonrecurring $10 million payment under the cares Act total costs and expenses decreased to $320 million compared to $346 million from 2020 period.

Moving to our pharmaceutical 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 reality compared to $28 7 million in the 2020 period inclusive of $8 $1 million of royalty revenue.

<unk> 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 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 leader med and can't for transactions, Phil mentioned earlier, partially.

Set by decreased so much rogen R&D related revenue.

The commercial organization.

Our cash balance as of September 30 was $148 $6 million and we have approximately 40 $64 million of availability under our recently renewed line of credit with JP Morgan.

The combination of 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 one 7%.

$2 1 million Covid PCR point of care and antibody tests during the fourth quarter.

As John mentioned, we have capacity well in excess of these levels should demand for testing increase.

Revenue could expand beyond our guidance.

Through October 27th we have already performed over 800000 Covid tests. So our range of guidance reflect testing demand from our physician 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 reality, 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 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.

As the expectation of research and development expense $17 million to $20 million.

With that I'll open up the call for questions operator.

Thank you.

Ask a question you will need to press Star then one on your telephone to withdraw your question. Please press the pound key please standby, while we compile the Q&A roster.

Our first question comes from the line of Maury Raycroft with Jefferies. Your line is now open.

Hi, This is Kevin <unk> on for Maury, Congrats on the quarter and thanks for taking my questions.

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 John I'll take it and you can jump in so we don't necessarily break it down between any individual channels.

But what I would what I'd say is about half of our volume comes from from.

From our retail and physician referral business and the other half comes from the other channels at least during during the most recent quarter.

Okay, great Thanks and.

For the recently announced Sandoz pricing just wanted to get your thoughts on that.

And then what metrics that you are going to be following their launch.

Yes.

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

Okay, Alright, thank you for taking my questions.

Our next question comes from the line of Edward <unk> with Piper Sandler Your line is now open.

Great. Thank you very much my question has to do with great already in October.

I'm wondering what format should we anticipate releasing that data when could we get that data and what would be next step. Thank you.

So thank you for that question.

In the process of.

Cleaning the data and getting.

Getting ready to lock the database it'll be some time before we actually.

Complete the analysis of the final dataset there really.

So the data will come in the form of a press release as well as a publication presuming that the data are positive.

Thanks, Joe.

Our next question comes from the line of Jeffrey Cohen with Ladenburg. Your line is now open.

Yeah.

Hello, and thank you for taking the questions.

I wondered if you could talk about the next market will move into your commentary about hoping.

Welcome to rejoin.

Triple Finnish growth from.

One is could.

Could you talk about the prenatal testing and screw it thus far as well.

Are you seeing and what kind of accretion you've issued here going forward.

So I'll take the second part there.

Doug.

There is there is a.

Potential significant overlap between the NFC testing.

Scarlet relative to large women's health groups.

No.

One of our four major specialty areas of women's health, where we continue to have significant growth that make significant investments.

Many of those accounts quite honestly most of those grew our are with large women's groups.

So as a result of that the overlap with Scarlet can kind of have a potentially additional effect.

Okay.

Okay got it was there any milestone associated with the.

So mature going approval from Cantor Fitzgerald and do you expect.

And Joe I mean to be the same in the U S as well for when approved.

Okay.

So there was no milestone associated with.

Canada Canadian approval and the answer is yes, we would expect the name to be the same in the U S.

Okay, perfect and then.

Good.

Adam could you go through a little bit on the margin side. It looked like there was a 10 year.

90 basis points.

Speed of Arris administration 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 with it within the lab business. It was overall we saw higher.

Higher net realized prices across across the board there wasn't any one individual driver.

There. So we were it was mostly on net realized price price improvements on the cost side. It was it was pretty similar to what we've seen in the past.

On the pharmaceutical side, we did see.

Higher net price than what we've previously seen as a result of those part D patients kind of rolling off.

Okay. That's helpful and then lastly for me.

Loan assumes runs.

And any commentary on labor or labor issues, I know, particularly with remarks by reference you know arguably your test volumes are a little softer on the COVID-19 side, but anything youre experiencing there to call out over the past couple of months.

And John can add more color, but it's certainly been a been a tough labor market and staffing up in the lab business overall.

We did we did overcome it but it was certainly a challenge during during the third quarter.

Yes, I would say that we.

We were.

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.

The Covid volumes as you recall started going down. We then had a U turn is the delta.

Delta hit so in that respect we had to essentially re hire.

Many people and at that point. It was it was difficult we got through it but it was a challenge for about four weeks to get enough people to re hire because the labor market with SOCAR.

Okay got it that's helpful. Thank you for taking our questions.

Yeah.

Our next question comes from the line of Yale Jen with Laidlaw <unk> Company. Your line is now open.

Good afternoon, and thanks for taking the questions.

In terms of the Covid testing.

Adam you have guided that it may be one seven.

Two 2 million test up or the next quarter.

Do you guys see that if we assume that the testing will be.

I mean, you continue for next year is the $1 seven or maybe a little lower than that could be a baseline for two.

Two more quarters into 2022.

So.

The guide that we gave.

We processed over 800000 tests. So far this this month of October and we guided the one 7% to $2. One that indicates that yields were just going to see a slowing of testing into the back half of the quarter.

It's really difficult to predict.

How how fast or slow the broader infection rates, we'll either grow or decline.

It's tough to say what a good baseline is for next year.

We're pretty comfortable with 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.

It's a challenge to try to predict the infection rates on a broader basis at least for us.

John I don't know if you'd add.

Yes, I think there is.

There is as Ed said.

A predictability factor I think that the.

One of the probably largest gating issues is what happens with the flu season and nobody knows.

If if there is a significant flu season youll see a significant increase in probably COVID-19 testing.

With people, who are going to want to know whether they have COVID-19 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 and maybe John just another question on leads.

Testing testing side, which is that.

Uh huh.

A quick position.

What do you think it could be the impact on the top line top line, maybe over the next year or the next few quarters.

With this acquisition.

Yes.

I'm not going to get into what I think the actual.

Top line revenue number will be I mean, we're in the we're in the process of course of moving as many of the clients over as soon as possible and setting them up so.

Can't comment about how quick or.

Or what the ramp up will be yet, but it is obviously a significant focus of the willing to tell but organization right now.

Okay, Great and maybe the last question on the desk.

Or the.

Hi, Sheila.

Pfizer indicated that the FDA requested additional data and that's why people do forward pushed to the next January of next year have they provide more colors in terms of what sort of data.

FPL was requesting.

It actually wasn't.

Direct up the aircraft was a pfizer.

So wherever you are additional data based upon timing since his trust trial and it's just continuation of the study open label information.

Okay, great. Thanks, a lot I appreciate and congrats on a good quarter.

Thanks Al.

Thank you there are no further questions I will now turn the call back to Dr. <unk> for closing remarks.

So thank you all for participating.

And we're over excited about the approval of our growth from our room product.

And we are.

For true, having an improvement in other countries.

Uh huh.

The year goes on into early next year, possibly.

We look forward to being with you again.

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.

Q3 2021 OPKO Health Inc Earnings Call

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