Q1 2022 OPKO Health Inc Earnings Call
Good afternoon, and welcome to Opco Health's first quarter 2022 financial results Conference call.
All participants will be in a listen only mode. So do you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions.
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Thank you operator. Good afternoon. This is a bond breaks with L. A J. Thank you all for joining today's call to discuss the Opco Health's financial results for the first quarter of 2022 as well as the recently announced <unk> Therapeutics acquisition I'd like to remind you that any statements made during this call by management other than statements.
A 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.
These 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, 2021 and in subsequently filed SEC report.
This conference call contains time sensitive information that is accurate only as of the date.
Of the live broadcast May nine 2022.
Except as required by law Opco undertakes no obligation to revise or update any forward looking statements to reflect reflect events or circumstances. After the date of this call.
Before we begin let me review the format for today's call, which will be a bit different given the exciting announcement about mode ex Dr. Phillip Frost, Chairman and Chief Executive Officer will open up the call Dr.
Dr. Elias Zerhouni, the incoming president and Vice Chairman of Opco will then provide an overview of <unk> therapeutics.
Then Dr. Jon Cohen will discuss bio reference laboratories.
After that Adam logo Opco CFO will review the company's first quarter financial results.
Following well open the call to questions.
Now I'd like to turn the call over to Dr. Phillip Frost.
Good afternoon, and thank you for joining today's call to discuss our first quarter financial results and business progress.
Earlier today, we made an important announcement that is that <unk> has acquired <unk> therapeutics.
<unk> is a privately held biotechnology company focused on developing innovative multi specific immunotherapies for cancer and infectious diseases.
Dr. Elias Zerhouni.
<unk> founder and chairman of <unk> has been appointed President of Opco Health and has joined our board of directors as Vice Chairman.
Doctors are huni as not only a leading authority on emerging trends and issues in medical care.
Biomedical research and development, but he also has a long entrepreneurial and distinguished academic government and industry career.
He served under President George W. Bush for six years as director of the National Institutes of health.
After which he became president of global research and development for Sanofi for nine years.
Oh, yes, we will provide some detail about the rest of the team I'd like to also welcome Dr. Gary Nabel and Alexis <unk> to our board of directors, both of whom have impressive scientific business backgrounds.
Dr enable will become our chief innovation officer, and his wife, Betsy Our Chief Medical Officer.
You'll have the opportunity to hear directly from doctors are honing shortly and Adam will provide further detail on the transaction.
I want to highlight the significant progress, we and our partner Pfizer has made with Laguna.
Pfizer recently launched and are growing in the major markets of Germany, and Japan, as well as in Canada, and Australia and the U S. Advisor is continuing to work with the FDA to resolve any remaining issues to bring their data to patients in the U S. As soon as possible.
Well may 2nd Semaphore Holdings Corporation announced the completion of their acquisition of Gene Dx.
We believe this is another step towards unlocking the inherent value of opco assets, while providing our shareholders the opportunity to continue to parse dissipate and the growing genomics market without a significant investment of capital.
John will go into more detail on bio reference and <unk>.
Other up go up which we considered to be of great value and with that I will turn the call over to Elliot. Thank.
Thank you Phil and good afternoon, everyone today.
<unk> taken the transformative steps for step for both companies I have to say I'm really excited to have the opportunity to work with Phil who have a loan I have known for a long time and benefit from his long and successful experience as well as with the entire optical leadership team.
Realize that a common vision to build a future for uncle based on leading edge therapeutic technologies synergy between <unk> and <unk> programs.
While <unk> was formerly founder then created a little over 18 months ago I think it's important to note that it's based on over 10 years of foundational work. When we created the breakthrough lab at Sanofi, which was led by Dr. Gary Nabel that has advanced a unique tri specific antibodies for HIV and cancer.
Into early clinical development.
In fact, the team composed of the scientists from that lab, all decided to join us at <unk> because of the prospects of further advancing the next generation of multifunctional therapeutics.
Ken if you will simultaneously attack multiple disease pathways in a single multi specific antibody molecule.
<unk> up two six specificities in and functionalities in the way that we designed it it's a versatile very plug and play approach that allows us to explore hundreds of configurations very efficiently.
And that allows us and we've demonstrated that in the in our.
Platforms to achieve broad broad targeting and functional capabilities.
Simpler manufacturing and potentially better specificity and safety.
Which provides I think significant differentiation from competing platforms.
In addition to what Phil mentioned, we have assembled a top management team with the joining of John Mascola CSO. John was the most recent head of the vaccine Research Center and worked closely with Madonna to develop the.
Covid vaccine Vijay shall I need to lead our growing CMC activities and <unk> Zhang.
Or as well as mentioned by Phil, but enable as Chief Medical Officer.
You'll see all of whom have extensive experience in academia government industry.
So our early efforts are focused on infectious diseases in immunology.
Technology is so versatile that it can also be extended to other disease areas. We currently have a political multi specific antibody phase one program against HIV in progress supported by NIH that shows how advantageous it could be relative to the current approach of having cocktails served.
And everybody as practice today.
We have several programs in late preclinical stages against Covid and this variance supported in part by DARPA and Epstein Barr virus vaccine and several country specific antibodies against solid tumors and lymphomas that we hope will enter clinical development in 2023. So many of these programs have also.
Garnered strong interest from other pharmaceutical companies for potential collaborations, which we're exploring at the present time.
But we will provide you with more details about all of our platforms and products in the near future and I.
Look forward to your questions in the meantime, let me turn it over to Jon Cohen.
So thanks, Elliot and good afternoon everybody.
As Covid testing has waned bio reference continues to focus on its strategy to grow our core diagnostic business grow our specialty testing segments in women's health Urology and oncology with also our strategic ventures at Scarlet Pearl.
Our commercial payer interactions continued to be successful with our preferred status with Aetna, which became effective on the first of this year.
Volume in our clinical base business increased 4% versus the fourth quarter, driven by a preferred status with Unitedhealthcare and Aetna.
Within our women's health business.
Non invasive prenatal testing business grew substantially.
Excuse me.
Almost 16000 samples year over year or a 219% increase.
Our S. T is our sexually transmitted disease focus and cervical cancer business both grew year over year.
For the first quarter of 2022 oncology was up 5% over the prior year and surpassed pre pandemic volumes for almost all lines of the oncology business with especially strong performance in our hematology portfolio and cancer genetics.
Cancer genetics, largely made up of our Oncotype suite of testing has more than doubled in volume in the last 12 months, we continue to bring on additional testing with our Orca side investments to include. The recent addition of multiple myeloma, which is built out our hematology and hematology offering is truly.
Best in class.
Regarding our four case score test with the FDA approval announced in December we have developed a growth plan to capture additional reimbursement coverage from the commercial health plan.
This test is approved for men, aged 45, and older who have not had a prior prostate biopsy or who are biopsy negative and had an age specific abnormal total psa or an abnormal digital rectal exam.
Our reference business from hospitals continues to expand as we add more hospitals each month and our partnerships continue to grow as we add more care centers hospitals and employed physicians within those networks.
As expected our Covid volume trended down in February and March after the omicron surge in December and January .
During the first quarter, we performed 2 million COVID-19, PCR tests compared to $2 7 million tests performed in Q4 of last year.
Covid volume currently remains stable and steady on a day to day basis as a result of our surveillance testing and ongoing testing for schools cruise lines and the sports industry.
We have added several new schools and several additional ships during the quarter.
Point of care Covid testing remains strong and bio references performed over one 6 million point of care tests to date.
We perform point of care testing at the Super Bowl and at the NBA All Star game, and we will continue to provide testing for the NBA through the finals.
In continuation of our point of care strategy, we announced an agreement with Q.
To bring point of care testing into the clinical setting.
Got.
It's been a little over a year since we formally introduced our at home digital initiatives named Scarlet health and I'm delighted with the progress we have made to date.
We launched Scarlet as a way to offer patients a more convenient and efficient way to meet their diagnostic testing needs Scarlet services are now available in most of the continental United States.
We are receiving added reimbursement from payers as they are specifically covered service for over 85 million patients through our national and regional plans were.
We're seeing significant demand for scarlet across our different commercial verticals, including oncology women's health urology and strategic ventures.
We're also finding success with digital health clients, including Telehealth home health care and virtual primary care networks, as well as direct to consumer and patient initiated testing.
I'm proud to announce today, a formal relationship with Teladoc one of the largest providers of telehealth services in the country with over $14 7 million visits last year.
<unk> is now offered by Teladoc health as part of their new whole person health care experience.
We also announced a collaboration with MVP health care to offer their members medically necessary COVID-19 testing routine blood work and other diagnostic tests in the comfort of their homes MVP is a not for profit health insurer carrying for members, who live in New York and Vermont.
Lastly, we are making significant progress on our reach initiatives to take out significant costs and improve efficiency in our operations with over 100 separate initiatives and progress looking at every aspect of every business and now let me turn the call over to our CFO Adam.
Thank you John before I go into the details of our quarter and full year outlook I wanted to highlight a few details about our <unk> X <unk> and Pfizer relationships.
Bill outlined we entered into our transaction to acquire moat ex today.
Paid a total of $287 million in shares of Opco issuing approximately 90 million shares as well as restricted stock and stock options totaling approximately 6 million shares that will vest over the next four years. The principal sellers of mode X have agreed to have their shares locked up for.
The next four years subject to certain conditions on April 29, we closed our transaction with them before with their acquiring gene Dx for $150 million in gross proceeds at closing and 80 million shares of <unk> stock, which we have agreed to lock up from.
One year from the closing date.
After considering transaction expenses and a $13 $4 million cash escrow net proceeds at closing were approximately $116 million were eligible to receive up to an additional $150 million payable in cash or some of four shares upon the achievement of certain revenue targets for <unk>.
During 2022 and 2023.
In addition, as Bill mentioned Pfizer, our partner for our long acting growth hormone recently launched in Japan, and Germany, which triggered $85 million in milestone payments, which we will receive in the second quarter of this year.
Moving to the financial results for the quarter, our diagnostics segment reported revenue of $286 million compared to $507 million for the 2021 period. This decline reflects decreasing testing levels. However, as John highlighted we performed more than 2 million COVID-19 diagnostic tests during the quarter.
As we discussed during our fourth quarter call margins during the first quarter were impacted by an increase in labor costs, while we manage through the surge in testing coming from the omicron variant as well as a significant portion of our test volume coming from our point of care testing channels, which have a higher cost to serve.
Once the omni Kron third subsided, we took aggressive actions to rightsize, our workforce and began to realize those actions.
Our gross margin exit rates were in line with our full year expectations.
The first quarter margins were also negatively impacted by approximately $13 million related to that labor charge.
As John mentioned, our reach initiative targeting $40 million in cost reductions is well underway and we will expect to provide additional updates as the year continue.
We continue to invest significantly in our commercial organization, including Scarlet health, our digital health platform and we accelerated the investment during the quarter and our <unk> commercial team.
Which resulted in an increase within SG&A of approximately $10 million. These increases were offset by reduced revenue cycle management costs and commissions due to the decrease in Covid testing.
Moving to our pharmaceutical segment, we reported revenues of $42 6 million for the first quarter compared to $38 $2 million for the 2021 period revenue from product sales in the first quarter of 2022 increased 8% to $36 7 million, which included $5 1 million.
Of revenue from reality compared to $33 9 million in the 2021 period inclusive of $5 $8 million related to round.
With respect to the transfer of intellectual.
Property, we reported $6 million of revenue for the 'twenty to 'twenty two period compared to 14 $4 $2 million from a year ago, reflecting a milestone payment received for the launch of <unk> in Europe , partially offset by decreased somewhat crogan R&D related revenue.
Operating loss from our pharmaceutical segment was $18 1 million for the first quarter of 2022.
The comparable period of 2021 reported an operating loss of $19 $2 million.
Overall research and development expense for the fourth quarter first quarter of 2022 was $12 3 million compared to $15 $8 million in 2021, reflecting a decrease in spending on our so much rogen development program.
With the approval of <unk> and amortization of intangible assets increased to $14 4 million from $5 million, reflecting the start of the amortization of our IP, our India asset.
Turning to the consolidated results for the first quarter, we reported an operating loss of $72 4 million compared to operating income of $38 4 million. During 2021 net loss for the first quarter of 2022 was $55 4 million or <unk> <unk> per diluted share compared to net income of 30.
$1 1 million or <unk> <unk> per share for the 2021 period.
We ended the quarter in a strong financial position as a result of our overall cash position. The net proceeds from our summer for transaction and a milestone in future royalty and profit share payments from Pfizer as well as the availability under our credit facility with JP Morgan.
As we look into 2022, we have updated our guidance with the following assumptions.
We have removed the revenue and expenses related to <unk>. After April 29, as a result of the summer for closing.
We've added the milestone payments from Pfizer.
Over $85 million. However, we have not forecasted royalty our gross profit share amounts until we develop some actual history throughout 2022.
We have added R&D expenses to reflect the development programs at <unk> X.
And we anticipate performing between three and $3 5 million Covid diagnostic test during 2022, including the 2 million tests. We've already performed in the first three months of the year, we have not assumed any new surgeon COVID-19 testing for the remainder of 2022 and as such.
<unk> expect our core clinical laboratory business will continue to improve.
We have not made any adjustments to reflect the accounting treatment for the <unk> acquisition or the disposition of gene Dx aside from removing the associated costs and revenue.
With that we expect revenue for 2022 to be between $1, one to $1 2 billion <unk>.
Including revenue from services of $810 million to $870 million revenue from products of $455 million to $155 million and other revenue of $100 million to $110 million.
We expect costs and expenses to be between 1 billion and $1 75, which reflects assumptions of testing volume as well as our levels of commercial investments within bio reference, which may choose to accelerate or delay depending on their uptake levels operating results include approximately.
A $100 million of noncash depreciation and amortization expense.
As well as research and development expense of $85 million to $97 million.
Thank you all and I will open the call for questions operator.
We will now begin the question answer session to ask a question you May Press Star then one on your telephone keypad.
We're using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question comes from Maury Raycroft with Jefferies. Please go ahead.
Hi, This is Kevin on for Maury Congrats on the acquisition.
Just wanted to ask you about how we should view R&D spend going forward.
And maybe if you could talk about what you're most excited about in the Moe Dx <unk> pipeline and how youre going to prioritize these programs moving forward.
So I'll touch on the R&D expense first and then.
And Phil talk on the R&D program so.
Overall, the <unk> programs are not significantly expensive compared to clinical products as we move into the clinic over the next.
18 months or so we'll start to see R&D expense start to increase but that youll notice in our guide today.
Fairly modest increase in overall R&D spend plan for 2022.
Yes. Thank you for your question Mike.
Mentally we have prioritized our portfolio for near term opportunities.
Weighted to the products that are most advanced the ones that are most advanced of the ones that we are.
<unk> licensed from Sanofi on an exclusive basis, meaning the price specific HIV.
Program, which is being developed in phase one right now in collaboration with NIH.
Funds actually the clinical trials at this point.
Have backup molecules.
For that program, obviously, we have also.
Sars try specific end of quarter specific that we're working on the government DARPA agencies interested in.
And we will continue to do that we have a vaccine.
Gary enable has led the development of and I was just published them against EBV Epstein Barr virus.
And we are really accelerating this one because we have a lot of incoming interest from.
Large companies that would like to partner with us. So those are the main priorities, we need to execute on those in parallel we've developed novel platforms. As I described very versatile with a lot of specificity and functionalities and we have in that category of basically three.
Advanced Quadri specifics for cancer.
Those we did not want to partner at this time, because we believe they have great potential.
The results that we have observed the lead us to believe that we should really drive these molecules to phase II.
Or entry into phase II entry to pivotal once we've conducted all of the.
<unk> studies, which are ongoing at this point in the early basket trials to identify the best.
Tumors to go after so that's really the prioritization, we have in mind and again as.
In my discussion, we will organize an R&D day for you all at some point in the next few weeks hopefully to give you a little more color on that.
Yes.
What I like about the whole program is not only that it is innovative but it's practical.
One of the advantages of the multi targeted antibodies.
In vaccines is that.
It's cheaper to manufacture one protein than three or four or five proteins. It also it's less risky with each one year manufacturing there is a risk of failure at some point along the way.
And finally there.
There is the possibility of greater efficacy.
Even possible better safety.
It is something that will be talked about by Dr. Nathan.
<unk> and <unk> in the future time, but all in all it represents a program.
Is differentiated from the many similar but yet very different programs that are underway elsewhere.
Great. Thank you so much for that and then just a really quick one on <unk>.
Are you still on track this quarter to start the gross profit share in Japan and then.
You have any update on the line of sight for when that might occur in Europe .
So so on the gross profit share that the Japanese or the region, we call. The Japanese region does start in the second quarter once they've established pricing that region moves into the gross profit share.
For Europe , we will need to achieve pricing in two additional major markets.
We've kind of projected out that that would take about a year from the initial approvals.
However, it could come sooner depending on how each individual country moves.
Great. Thanks, I'll hop back in the queue. Thank you thanks, Kevin.
Our next question comes from Jeffrey Cohen with Ladenburg Thalmann. Please go ahead.
Hi, good afternoon, and thank you for taking our questions and congratulations on the promoter.
So.
I've got a few here so firstly.
<unk> closed or whats the expected timeline on the closing, giving me Jackie yes.
Closing happened today, we signed and closed simultaneously.
Okay wonderful so.
The 85 million milestones from Pfizer's launched assumed before.
100 and.
$8 million that you referenced we should expect both of those to hit the income statement in the second quarters are cool.
Yes, the $85 million yes.
The cash from <unk> and the shares will hit the balance sheet. We're.
We're still working through the gain and loss calculations.
Got it okay.
Yes.
South Dakota, some of your comments on Covid testing so.
<unk>.
The anticipated.
For the full year as far as the number of times can you can have.
Additional flavor on point of care versus PCR.
Well I think.
<unk>.
What's happened is the point of care.
As has significantly increased at many of our Sorel insights, but not all so.
We still do both offer the cruise lines, although it's become much more point of care, we do both for the sports industries, but most of its point of care.
Many of the schools have state have stayed with the PCR quite honestly.
It has variable client to client.
<unk> seen an uptick which is no surprise I think if you if you see what's going on and you saw the CDC numbers recently, we have seen a uptick in the general public testing.
Our partners in the.
The last two weeks.
So I think the answer is it's like all of the stuff with some with Covid is unknown, but we do have as I said, a steady flow of this for the surveillance side of the general public will continue to go up and down depending on what various peers next.
Okay got it.
What's the timing on new following your Q for the quarter.
It should be at today, Jeff.
So again more clarity on the on the cost of service versus the cost of product revenue.
Yeah.
Yes, we will have it broken down you will see that the cost to serve on the bio reference that was impacted by labor as we.
Had spoke about.
Okay and one more on your guide.
The second category I think I missed that was between services and whether those products what range of reserve to something in the $2 50.
It was just to confirm from what we originally provided $1 45 to $1 55.
Okay got it went toward a solid Jones from Stifel. Okay, perfect retention for us thanks for taking the questions.
Thanks, Jeff.
Yeah.
Again, if you have a question. Please press Star then one.
There are no further questions at this time and with this this concludes our question and answer session I would now like to turn the conference back over to Dr. Phillip Frost for any closing remarks.
I'd like to thank you all for attending this conference.
I will say that.
The acquisition announced today.
Is an important next chapter in the history of Opco.
And we're really thrilled.
Happy to.
Have the addition of doctors are only.
Enable.
And their colleagues to the Opco family.
Look forward to working together with all kinds of successes.
With that.
You too.
The conference call for this quarter's earnings, which we will anticipate being in three or four months.
Thank you again.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.