Q3 2022 OPKO Health Inc Earnings Call
Good day.
Pardon me good day and welcome to the Alterra Health third quarter 2020 financial results Conference call.
All participants will be in less time, and there shouldn't be any assistance. Please signal conference specialist for personal starchy followed by zero.
After today's presentation there'll be an opportunity to ask questions.
Ask a question press Star then one.
On your telephone keypad to withdraw your question. Please press Star then two.
Okay.
Is being recorded I would now like to turn conference over much Yvonne Briggs. Please go ahead.
Thank you operator and good afternoon. This is Yvonne Briggs with L. A J. Thank you all for joining today's call to discuss <unk> financial results for the third quarter of 2022.
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, 2021, and subsequently filed SEC reports.
This conference call contains time sensitive information that is accurate only as of the date of the live broadcast today November eight 2022.
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 of today's call Dr. Phillip Frost, Chairman and Chief Executive Officer will open the call Dr. Elliot Zerhouni, Vice Chairman and President of Opco will then provide an overview of <unk> pharmaceutical business as well as 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.
Good afternoon, and thank you for joining today's call to discuss our third quarter financial results and business progress.
Starting with our core elsewhere in Lesotho business, we're pleased with the launches to date, and Jaguar or Sumatra, dawn or commercial partner, Pfizer and <unk>. Our once weekly injectable growth hormone product that's expected to ease of patients burden versus the standard of daily injections.
Pfizer has launched in Japan, and other countries, including Germany, Canada, Australia.
In Australia in General is now offered through the pharmaceutical benefit scheme, which is Australia's national drug subsidy program.
Although it's still very early in the launch of dresses.
<unk> territories, and John Lewis, starting to experience significant sequential quarter growth, which Adam will review in a moment.
Additionally, there are several pricing approvals pending in other European countries, where should occur soon.
In the U S. I can assure you we're working diligently with Pfizer to resolve the Fda's comments regarding Sumatra guns BLA submission.
As you know, it's Rogers position not to disclose any further information regarding the Fda's comments and the complete response letter ongoing discussions with the agency or strategy to advance the regulatory process.
Yeah. They have publicly stated that their commitment to the product in the U S market.
As soon as we are able we will provide an update with additional information on the regulatory status of Sumatra gone in the U S.
We're pleased with the progress of our licensing partners for several of our development stage drug candidates.
Peter made our joint venture partner in China is expected to initiate a phase III trial box into module one for the treatment of obesity and type two diabetes early next year.
<unk> is also planning a clinical trial over a factor of seven C. D. P. A novel long acting coagulation factor to treat hemophilia.
We look forward to the results from these clinical studies as we plan to leverage that data for regulatory approval in countries outside of China.
Our mortgage team is enthusiastic and motivated to advance the pipeline of the combined company.
And to leverage the <unk> proprietary technology platform focused on multi specific antibodies.
Their unique part form technology represents a significant opportunity to provide better therapy and outcomes for a wide variety of patients and we continue to advance our discussions with potential partners.
Keep you updated on our progress.
Oh, yes, you're horny.
As immersing himself in all aspects of our business and has spent significant time on site at bio reference laboratories to provide oversight leadership of the diagnostic operations and strategy.
Oh, Yes, we will provide further details on the web performance falling just commentary on the pharmaceutical business with that brief review I'll now turn the call over to Elliot.
Well. Thank you. Thank you Phil and good afternoon, everyone.
Been a busy and extremely rewarding six months.
For me since <unk> was acquired by Opco for all the teams that are involved.
Phil mentioned I've been focusing my time on all aspects of <unk> business, including our pharmaceutical and diagnostic divisions.
Starting with the integration of <unk>. The team is very excited to be part of opco and to leverage and benefit from the knowledge resources and platforms within <unk> as we advance our multi specific technologies.
As Ive discussed on past calls Nordics has two technology platforms. One is focused on developing vaccines utilities, Inc. Utilizing sheraton protocols, which is a necessary protein for all cells as it brings Ireland for their metabolism.
Technology attaches specific antigens to the ferritin protein, which then self assembles into nanoparticles and a very scalable and cost effective manner.
Our first application of this technology is to target the Epstein Barr virus, which is responsible for infectious mononucleosis and its long term consequences in some patients such as cancers and multiple sclerosis.
We are in the pre IND stage for that application and in earlier stages for other targets.
As you know is vaccine trials require significantly larger numbers of subjects to.
Test for efficacy and safety our development strategy is to pursue collaborations with larger pharma companies to advanced drug candidates into the clinic and ultimately bring them to market upon approval and we're very encouraged with our discussions to date as we seek suitable partners for this.
Things vaccine technology platform, which as Phil said potentially lends itself to multiple applications in infectious diseases.
Now our novel proprietary platforms called Star and stealth enable us to design multi specific multivalent antibodies beyond the bi specific and Tri specific formats currently used by us and others.
This provides us extraordinary flexibility for a multi specific technology to go up to a total of six targets simultaneously.
We believe that star is a plug and play platform, which optimizes functionality and manufacturing simplicity typically a challenge for multi specific technologies.
Our star Technology is focused on infectious diseases and oncology indications.
In infectious disease, we include HIV and COVID-19 in oncology, we address both solid and hematologic malignancies in our pipeline. We have a try specific candidate in phase one to treat HIV that received support from the NIH.
And as well as two preclinical multi specific candidates also targeting HIV in.
In addition, we have several Sars COVID-19 two multi specific antibodies in late preclinical stages.
Partially funded by DARPA.
That provides protection against multiple variants of concern.
All at once.
In oncology, we have two multi specific antibodies focused on hard to treat solid tumors and one focused on liquid tumors. These oncology programs are all in the preclinical stage with a goal of entering the clinic in late 2023 or early 2024.
Now I'd like to switch gears and discuss our bio reference laboratories.
Though we continue to realize additional cost reductions post the COVID-19 expansion that we experienced.
Those initiatives are moving quite rapidly the laboratory had another challenging quarter as we transitioned away from Covid testing and focus on strengthening our base business as.
As discussed in our last conference call a three pronged plan was put in place in order to right size the expense structure and drive growth in our core and specialty testing businesses.
So we first.
Focus on decreasing our cost structure through our reached initiative.
Which commenced at the beginning of 2022, we were looking to remove $140 million a year in expenses. This year and have realized savings of more of more than $100 million to date, we have reduced our workforce to 3300 at the end of September from a total of over 4300.
Prior to July .
It is imperative that we also align our infrastructure and related costs with current testing volumes for COVID-19 being reduced to endemic levels. In addition to inflation pressures, we have focused our efforts on operational excellence, including revenue cycle management tools offset these pressures while <unk>.
Assuming efficiencies in virtually every area of our business, including rationalization of our testing platforms and looking at opportunities to use laboratory nation and machine learning where possible.
I think that a highlight of our diagnostic business as our specialty segments, which continued to outperform these segments include.
Carlo <unk> women's health Urology and special ventures.
All of which have demonstrated promising growth opportunities.
For example continue to outperform in the oncology franchise as we are showing strong growth year on year within our genomic sequencing line of testing.
We've expanded our relationship with Westchester Medical center beyond our existing lab management business. In addition, we have a new definitive agreement with the University of Rochester for oncology testing as well as several other larger large cancer centers.
We continue to expand our best in class oncology portfolio with new and emerging diagnostics testing and example of this is uncle clone for minimal residual disease, and emerging unmet need which oncologists considered critical to their management of patients which helps.
Physicians.
At all times.
Oncologist to determine whether diseases, reoccurring or not and adjust therapy accordingly.
On the core business side, we've done work to prepare for the emerging respiratory season and launched the new multi test panel that test for simultaneously for Covid for flu, a flu b and RSV, which is well received and increasingly used I think we've done a good job of stabilizing.
Volume in women's health with an eye on growth moving forward. An example in womens Womens health is a collaboration with a spiral women's health.
And bio reference lab laboratories in a spiral will co market and distribute <unk> plus which combines aspire is FDA cleared blood test all of our one <unk> to detect the risk of ovarian malignancy in women with <unk> masses prior to surgery.
Our <unk> test for prostate cancer continues to perform well and the third prong of our right sizing plan is focused on optimizing our organizational structure to streamline the responsibilities of our leadership team to improve our speed to market with new products and initiatives and most particularly.
Early improve our agility and decision, making through a much less complex management structure.
We're also in active discussions with health systems and value based care organizations, which also represent a significant growth opportunities and synergy with our diagnostic platforms.
And so I will now turn the call over to our CFO Adam <unk>.
Adam.
Thank you Elliot starting with our pharmaceutical segment is our partner for our long acting growth hormone recently launched in Gen <unk> and a number of countries. Since earlier this year and continue to expand its launch over the next 18 months are part of its global regulatory and commercial strategy, we're entitled to.
Profit share royalties, depending on the region in which the product is sold in Japan. We are in the franchise gross profit stage and in Europe , We're receiving royalties until pricing is approved and in general is launched in two additional major markets in Europe .
If approved in the U S. The U S region will move to gross profit share, but until then we will continue to receive royalties on sales in the regions.
Regions market.
Overall revenues from the pharmaceutical segment for the three months ended were $36 9 million.
A decrease of $8 $8 million, reflecting foreign currency pressures in our Chilean and European operations as well as the decrease in royalty volumes. In addition, during the 2021 period included nonrecurring upfront payments from camp or in leader Med.
Total costs and expenses from our pharmaceutical segment and the 2022 period were $65 $2 million, including $16 5 million of noncash intangible amortization <unk>.
<unk> and development activities increased $4 $7 million, reflecting a full quarter of development expense from our <unk> operations as well as costs related to our Soma drug in development activities.
Principally around the development of our next generation device.
As a result operating loss from our pharmaceutical segment was $28 3 million for the third quarter of 2020 to the comparable period of 2021 includes a $31 $5 million gain which offset expenses of $48 5 million for net expense of $17 million and income from operations.
Of $28 6 million.
Moving to our diagnostics segment, we reported revenue of $142 9 million compared.
Compared to $342 million for the 2021 period. This decline reflects decreased COVID-19 testing levels as the broad testing market has shifted to rapid at home testing, we continue to execute our reach program as Elliot mentioned and during the third quarter alone reduced our analyze annualize.
Employee costs by $46 million and are targeting further expense reductions across the entirety of the organization.
As Elliot mentioned again, so far in 2022, we have reduced our expense run rate by over $100 million and continue to see benefits of this program each sequential month.
The third quarter.
2022.
We have reduced or eliminated spending on our longer term commercial initiatives, including Scarlet health and our digital health platforms, while we bring the remainder of our cost structure in line with our expected volume levels.
We have identified a number of near and medium term growth programs, which Elliot outlined we expect those to realized in the first half of 2023, which will help us earn by a reference to profitable growth.
Looking at our base business, our third quarter volumes decreased by about 4%. Nevertheless, the result negatively impacted our overall growth and operating margins.
We saw strength in certain lines of our testing as Elliot mentioned with our cancer genomics business showing growth along with the <unk> score test compared to 2021 levels. However, these gains were offset by the evolving physician practice market, where we saw client loss due to the consolidation and roll up of small physician group offices are.
Operating loss for our diagnostics segment was $49 5 million.
Which reflects a sequential decrease of.
Approximately $8 million before considering $5 million of nonrecurring charges included in the third quarter.
The third quarter of 2021 reported operating income of approximately $19 $7 million, which benefited from significant COVID-19 testing that occurred last summer.
Turning to the consolidated financial results for the third quarter, we reported an operating loss of $87 $8 million.
Compared to 2021 operating income of $37 8 million.
Net loss for the third quarter includes a $36 million noncash mark to market adjustment from the declines in the price of <unk> common stock.
Offset by an income tax benefit of $43 million, resulting in a net loss of $86 1 million or <unk> 11 per share.
Compared to net income of $28 7 million or <unk> <unk> per diluted share for the period.
Which as I previously mentioned benefited from Covid testing as well as the sale of our fill finish facility in Ireland.
As we look at the remainder of 2022, we have narrowed our ranges, which are with consistent assumptions from prior quarters to the following.
We don't expect a surge in Covid testing our base business will continue to with most our most recent trends and we have not factored in any changes to the value of our semaphore common stock with that we now expect full year revenue for 2022 to be to be between 900.
$80 million and $1 billion, including revenue from services of 735 million to $745 million.
Revenue from products of $135 million to $140 million in other revenue of $103 million to $110 million.
We expect costs and expenses to be between 123 and $1 25 billion.
Which reflect various assumptions are testing volumes.
Operating results include approximately $110 million of noncash depreciation and the amortization expense as well as expected research and development expense of $75 to $78 million.
Thank you and we'll open up the call for questions operator.
Eric commented now begin the question and answer session question. You May Press Star then one on your telephone keypad for years and Speakerphone. Please pick up your handset before pressing the keys.
With charter.
Florida.
At this time, we will pause mentality for Roxanne.
And our first question comes from Maury Raycroft of Jefferies. Please go ahead.
Hi, This is Kevin <unk> on for Maury, Thanks for taking my questions.
First question on <unk>.
Again in Europe just.
Can you talk about how far away you could be from from profit sharing there in terms of the last two launches could that be by year end.
And then also is there anything that you've learned so far from the scientists launch on patient and doctor appetite to switching to the long acting growth hormone.
So I'll talk about the profit share. Thanks.
Thanks for the question so in Europe , we've projected and guided that we expect that switch to happen in the first quarter of next year, certainly things could happen sooner, but that is where are our current expectations are.
As far as the <unk> launch so the adoption in the U S seems to be to be going fairly well for for them, it's hard to see.
Anywhere beyond that but we think we think the switching is going to happen rapidly and the adoption of the products will happen quickly under the long acting form.
Great. Thanks, and just one more follow up on the cost reduction effort, you mentioned $100 million. So far this year can.
Can you just talk about where you are in the context of your final sort of cost reduction goals.
And then given the COVID-19 testing paradigm.
What do you expect your capacity there.
Going forward.
Yes.
We talked about their reach program, it's going to be a multiyear effort. We haven't we haven't finalized our targets for 2023 on what that program is going to go for but we've said we've set the objective to take out $140 million and costs and we're well on our way to that already.
So I don't know if you wanted to say any words about the reach program based on your involvement to date.
No I think you're right I think we are really aiming to do.
Go to 140, and we actually see opportunities to go beyond that.
Related to the flattening of the organization and the ability for us to automate laboratories, and therefore reduce labor expenses, so $140 million as a minimum and I think we can do better than that but I couldn't tell you until we have the 2023 figure it out.
As it relates to Covid capacity. So we continue to have adequate capacity as you'll remember we brought up capacity pretty quickly.
When it was needed and could flex to it right now we're staffed to our current volumes, which which we've talked about have come down dramatically from where they were earlier this year, but would have the ability to scale back up should we need.
So I think also.
If I may I think also that we were.
No no we were quite aware that this season will be different than the previous ones that COVID-19 will be persistent is endemic virus through a flu.
And Brian as you know from the projections with CDC, where.
We are predicted to be very high so we developed a new offering.
Foreign one test that is actually getting a lot of good.
Good reviews and good reception.
Medical community.
And growing very fast in terms of demand because this.
Winter in the beginning of next year are predicted to be quite severe in terms of what people call. The <unk>.
RSV flu and Covid, just just the point.
I was just screaming too.
With regard to borrow a reference.
A two pronged approach one of course is cutting cost but.
Not to neglect of course.
Emphasis on increasing revenues and in that regard one point was mentioned that I'll highlight and that was new ventures.
This is an area that we are devoting a lot of attention to with.
Some really good talent applying themselves I'm very hopeful that this will pay off in a serious way.
Great. Thank you very much.
Our next question comes from Jeffrey Cohen of Ladenburg Thalmann <unk> Company incorporated please go ahead.
Hi, Dr Frost, Dr Zerhouni, United them, how are you.
Yeah.
Good good Thanks, Hey, Jeff So just a few questions from around I guess.
Firstly, if we could go back to a.
June was a little bit do you have clarity words as far as your share the information as far as.
Reimbursement and pricing by some of these territories, which they're launching throughout.
So we don't get any specific pricing guidance other than whats publicly available otherwise.
Okay got it.
Thanks.
Adam I don't know if its handy, but is it possible to get out of cost of service revenue and cost of product revenue at your convenience.
Yes, we will get that to you the Q should be on file any minute now Jeff.
Sure and then I guess lastly for us whether to hear a little more about some of the additions.
RL side I saw that you had an interesting.
<unk> with the spirit of women's health as far as that just one.
Dr. <unk> talked about new ventures could you give us any more color there as far as <unk> is in licensing of chess or developing your own Josh and kind of.
How you are building that out in your range.
I'd say all of the above.
Got it.
Okay and then.
Lastly, any.
Specific readout or any commentary on <unk> from the quarter from Q3 or any outlooks going forward in <unk>.
Okay.
I think that is.
It's doing very well, it's certainly moving ahead of last year and again <unk> is doing a good job of identifying initiatives. During shell has been working with the team to bring more payers onboard, but we're very optimistic that the growth that we're seeing now will continue and perhaps accelerate.
Okay Super Thanks for taking our questions.
Thanks, Jeff.
Our next question comes from Edward Kelly.
Piper Sandler. Please go ahead.
Great. Thank you very much appreciate the update and I'm really excited about the new efforts with mode.
You mentioned with so much going on.
Maybe you can get into a little bit more detail on partnering opportunities are there specific areas like sort.
And I'm, making this up cycle apology, where you would either keep or maybe because of the complexity seek partners.
Or is there a focus for <unk>.
Internally on the infectious disease, how would you sort of prioritize program.
Ultimately decide what to keep internally and what to ultimately develop external okay. Thank you.
Thank you for the question very important question. The first thing is that we have received a lot of incoming interest as we presented our portfolio in various venues.
In the interest.
Is leading to.
A strategic consideration on our part obviously, we do have a.
In infectious disease portfolio, that's composed of two.
Segment as the vaccine segment, whereas the most advanced vaccine candidate is EBV and as you know ABB is quite important and Ken mononucleosis, but also cancer now multiple sclerosis. So that's a huge market that has attracted a lot of interest at the same time, we have flu and other.
Prototypes that are being tested and so we think that in vaccines viral diseases like HIV and covered we have quite a bit of near term potential for large.
Large collaborations as well as.
Potential trials in terms of oncology, we are really looking at.
Using the multivalent multi specific approach to test out.
Our ability to actually not look at very.
Unknown targets, but non targets and unique novel combinations based on the knowledge that we have our preference would be to keep that in house.
Not to partner those because we think that the multi specific multivalent platform has enormous potential as Ross mentioned to you. So we're trying to finance if you will a little bit through our infectious disease may be licensing out and partnering at the ability for us to keep a half of the portfolio in <unk>.
Two <unk>.
Yes, I don't know if that helps you.
Super helpful color. Thank you.
Okay.
Okay.
Our next question comes from Yale Jen with Laidlaw and company. Please go ahead.
Good afternoon, and thanks for taking the questions.
The first question is that I remember the last call you mentioned that you made during the R&D day to highlight some of the things into <unk> is that still in the schedule for this year or next year, yes.
Yes. It is still in the schedule, we're still planning it we do have a few things that we need to finalize in terms of.
Discussions with others.
We need to do.
So we're aiming for something either December or JP, Morgan or right around JP Morgan, Thus, where we're trying to do the R&D day, I think things will be a little more mature and I think people will enjoy it more because it will be more detailed than what we can do today.
Okay, Great. That's helpful. Maybe one more question in the vaccine.
You mentioned that they're most likely to be a partnering opportunity, but in terms of that.
Stage.
Development stage to be partnered or you guys looking for.
Complete maybe the earlier stages.
Clinical development before partnering or you, even contemplate partnering out and much already even preclinical early clinical stage.
We have interest for for both.
Thanks, we're going to do whats really.
Practical and it depends on the quality of the partners.
And so we're basically <unk>.
At this stage, we're going we have the manufacturing we're working on all of the steps you need to have before you go through and we're willing to do it alone if we need to if we find a.
At term terms of collaborations that are.
Attractive, we'll do it the other way so we're not pressed for one choice or the other.
We can continue it on our own we can also partner it.
Yeah.
Okay.
I'm not wedded to one way or the other is what I'm trying to say.
Understood and I appreciate that and maybe the last question is a housekeeping one debt.
As we look at the <unk>.
Total other revenue incomes.
It seems to fluctuate a lot.
Between quarters, so how should we in general.
All of this.
Number.
Going forward.
Yes so.
It's going to be a balancing number because we've got some lumpy milestone payments that come through and some of our partnering deals as well as just the overall milestones that come through so the consistency is going to be the the growth from our reality and and Pfizer.
Gross profit and royalty streams.
But that and that we expect to build a good base and when those individually become material will start to break those out for you guys to work in your model, but otherwise we'll continue to give guidance on on what what's included in that number and what's not included like early this year, we talked about.
Have the milestone payments factored in until we got we got the approvals and then.
Our guidance related to those.
Okay, Great that's very helpful and congrats on the progress it's Paul Thanks, Thanks Al.
At this time our question and answer session has concluded I will now turn the call back.
Mr <unk>.
Dr. Franz.
March.
Well thank you for your.
Participation in excellent questions.
As you can see there is a lot more.
Detailed.
Work going on.
The development of new products, we hope to do with some time in the near future perhaps in the first quarter have a research day in which we can go into a little bit more detail about some of these projects and give you a transfer to meet some of the scientists. So that you can get a better feel for what we're dealing with here and to understand why.
We are so enthusiastic.
Having said that.
And the <unk> session.
Invite you to join us.
For the end of the year fourth quarter meeting, which will be forthcoming. Thank you.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
[music].
Yes.