Q1 2023 OPKO Health Inc. Earnings Call
Good afternoon, and welcome to the Opco Health first quarter 2023 financial results conference call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note. This event is being recorded I would now like to turn the conference.
Over to Yvonne Briggs. Please go ahead.
Thank you operator. Good afternoon. This is Yvonne Briggs with L. A J. Thank you all for joining today's call to discuss Opco health financial results for the first quarter of 2023 I'd like to remind you that any statements made during the 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, 2022 and in subsequently filed SEC reports.
This conference call contains time sensitive information that is accurate only as of the date of the live broadcast may three 2023.
As required by law Opco undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances. After the date of this call.
Before we begin let me review the format for today's call 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 health.
After that Adam Bogo, Opco CFO will review the company's first 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.
Good afternoon.
Thank you for joining us today.
In early March we announced that <unk> entered into an exclusive worldwide license cooperation agreement with Merck.
To develop our multi viral nanoparticle Epstein Barr virus vaccine.
Agreement provides validation of <unk> multi targeting technology why simultaneously engaging for key proteins used why you'd be free to infect cells.
This represents a first in class strategy to prevent the viral infection, which is a cause of mononucleosis and has also been implicated in the as the leading cause of certain malignancies.
The development of multiple sclerosis.
We're delighted to have entered into this transaction with Merck as we believe they are the ideal partner for the development and future commercialization of our EBV vaccine.
Oh, yes, we will detail the terms of the agreement in a few minutes.
That's where growth hormone Pfizer continues to drive the sales have been done well or some African once all of them.
Once weekly injectable growth hormone product, that's expected to ease of patients burden versus the standard daily injections and Jamba is now approved in over 40 countries and has been launched in 17.
Including the major markets of Japan, Germany, and the United Kingdom.
<unk> expects to launch and another 15 or more countries during the remainder of this year.
Wrung, all priority international markets by year end.
We're looking forward to significant sales growth, we're enjoying working with the new launches and as market penetration continues to grow.
Adam will provide further detail on off goes gross profit share and royalty payments from Florida or.
We look forward to providing updates on some Africans regulatory status in the U S.
With the expectation of a forthcoming definitive response from the FDA.
And also commercial progress in Internet National markets.
As for our Diagnostics Division, we're pleased with the ongoing turnaround bar references experience as we reduce costs and rightsize the business.
Leading national Laboratory.
Reference continues to focus on innovation and higher value value testing in our specialty segments.
Including oncology women's health and urology as well as seeking to drive growth with additional partnerships or joint venture arrangements.
Oh.
Our profitable zero American business continues to grow and is currently expanding its veterinary product line from its base in Spain into France, and other European markets.
With that brief overview I'll now turn the call over to Elliot to provide further discussion and commentary on our pharmaceutical laboratories businesses Oh, yes. Thank you.
Dr. Paul.
Afternoon, everyone. Let me start first with a discussion of our recently announced an exclusive worldwide license and collaboration agreement with Merck as mentioned by Doctor for securing.
Securing a partner has been our strategy to advance the development of Mdx 20, 201, our Epstein Barr virus multivalent nano.
Article vaccine.
EBV affects up to 95% of the global adult population during their lifetime and is associated with about 1% of all cancers cancer cases worldwide.
Also is the leading cause of infectious mononucleosis and recently has been implicated in the development of multiple sclerosis.
The prevalence of this virus and its role in causing life threatening diseases. There are currently no FDA approved vaccine or treatment for EBV.
Our vaccine Leverages innovative biologics platform to target four major EBV protein.
Multi targeted approach improves upon previous efforts and holds potential to provide a complete protection against this infection.
Under the terms of the agreement.
<unk> received.
The upfront payment of $50 million.
And is eligible to receive up to an additional $872 $5 million upon the achievement of Prespecified.
Well, a month and commercial milestones.
In addition, upon a commercial launch of Mdx 20, 201, we're eligible to receive.
Up to double digit royalties on global sales.
<unk> and Merck will jointly advance M. D X 20, 201 up to the filing.
And investigational new drug application after which Merck will be responsible for all clinical and regulatory activities as well as product commercialization expenses.
Expenses incurred by Opco or this program prior to who.
So I'm thinking of responsibility by Merck will be reimbursed to optical as well prior to the IMD.
We are excited about this collaboration M. D X 20, 201, only addresses an important unmet medical need, but I was stuck across that it validates our approach of multi targeting bulk in vaccine and with multi specific antibodies, which is what <unk> does.
Long with Merck, we were relying on advancing this vaccine with the goal of benefiting patients globally.
In other parts of the pharmaceutical business that continues to make progress with other proprietary platform.
In the quarter.
I'm, sorry, and sell these technologies have advanced.
Then following these multi specific to technologies to provide flexibility to go beyond the three targets in up to a total of six we believe M Star is a plug and play platform that provides a competitive advantage over all the other multi specific technologies with 28 patents filed.
Good day.
Congrats on therapeutic candidates.
Evaluate which targets we keep in house in which we seek to partner in order to maximize the value of our pipeline.
Example, we have a partnership with the NIH to provide funding for our phase one trial specific candidate.
Both prevent and treat HIV. In addition, we're working on next generation candidate targeting HIV, including to treat and one pick a specific candidate with increasing potency. We believe there is a significant medical need as there are no vaccines antibodies that can provide long acting protection.
Prevent and treat infection in current HIV therapies. Despite their great progress still have limitations, including drug toxicity, you do lifelong treatment and drug resistance that can impact efficacy of viral suppression.
In addition to these efforts we have worked on a COVID-19 multi specific antibody program.
The ongoing post pandemic need to address the continuous appearance of variance of concern around the world even today.
It is unclear what the evolution of the pandemic will be but we do believe that the pandemic will raise the bar.
Iris will remain in the human population and will require a instead of therapies to in particular helped patients at risk because of existing conditions or suppress the immune systems. So we have a particular interest in exploring antibody candidates that can treat those patients at risk.
It can prevent the development of Covid in.
And these vulnerable populations.
Vintage of our technology platform is that it is modular which allows for a rational selection of antibodies optimize potency against your current and future, Spain and prevent the emergence of viral resistance.
Our South Dakota to multi specific antibodies.
We're currently in late preclinical testing and the development is partially funded by DARPA.
In oncology, we are also multi specific multi functional antibody.
Primarily on hard to treat solid tumors, but also for the treatment of leukemia and lymphoma.
We believe the value proposition the multi specific T cell engaging antibodies and its potential.
<unk> demonstrates clinical efficacy for solid tumors and B cell malignancy.
Current standard of care does not sustain remission and the large number of patients.
Calls your programs are in the preclinical stage with the goal of entering the clinic in 2024.
Oh, let me refer you to our new website for more information and updates on publications and portfolio evolution reach a bold up both at Aqua dot com or <unk> com.
Let me turn now to.
Right.
We continued to achieve certain milestones with our international partners.
In Germany royalty was granted pricing approval, which triggered a milestone payment of $7 million from our partner before.
Individual to receive up to an additional $10 million in regulatory milestones and up to 207 million in milestone payments tied to launch pricing and sales of royalty plus tiered double digit royalties.
In addition, we received a $2 5 million milestone payment related to Nicoya submission of Ray all of these are in the application to the center for drug evaluation of China.
We're eligible to receive up to an additional $150 million in payments upon the achievement of sort.
Certain development regulatory and.
Sales based milestones as well as a tiered double digit royalty on low double digit royalty on net sales by the Korea and China.
Well our program in Alzheimer's disease.
Base, primarily.
The use of molecules that can mobilize blacks is currently exploring potential strategy partnerships with larger companies given the renewed interest that is now clearly presence, including with the news today is Eli Lilly results that affecting the a beta protein deficit.
And blacks is actually potentially very effective and our approach could be complementary to those so the antibodies used today or could be used.
In the near future and the patient population.
So these programs are.
Oh, hi, interest now because they do provide synergy potentially with existing and emerging therapies for Alzheimer's disease.
Now I'd like to turn to our diagnostics segment and discuss bio reference felt which is the the new name for what was previously called bio reference laboratories.
Our focus post COVID-19 remains on reducing costs and returning this division to profitability.
We're extending our reach initiatives into 'twenty, 'twenty, three which to date has been affected.
To improve efficiencies enhance productivity and reduce costs. For example were starting to realize the economic benefits of shifting out of 13 less productive patient centers to 11, new more productive one with our most strategically located we.
We had addition, we have increased our sales force primarily on the specialty diagnostics and health system vertical and are also entering the pharmaceutical market in which we have not been present in the past.
Our higher value specialty testing segments continues to grow as we enhance our portfolio through innovation.
These segments include oncology women's health urology and special interests.
For example, our Gen past wounds held division was one of the first commercial laboratories to offer off of Sinter Klaas psychology. This is.
The only approved dual playing dual thing previous tests for patients that have a high risk <unk>.
H B V result high risk for the development of cancer.
The dual stage biomarker test allows health care providers to more accurately and quickly assessed the risk for cervical pre cancer and guide their management.
As I mentioned, a key growth driver for by references to awkward new tests like this one from Roche to enhance it is innovative portfolio and to provide value valuable information for health care providers and their patients.
<unk>, our expanded commercial team is focusing on marketing and selling our proprietary for case core test, which is a blood test to evaluate patients or likelihood.
Aggressive.
Prostate cancer and help direct management of these patients urology team is also driving new accounts.
And more importantly, the recent.
American Urology Association guidelines have validated the fact that consideration for the use of a four two score or like cost is actually warranted in terms of the clinical guidelines. They now provide to their urologists and so we're going to expand our access for these.
So I'll just ask two other clinical services hospital services and others.
We are expanding our reach to those clinical services hospital services as well as urgent care centers, where we want to offer a complete menu.
This is as.
As we implement our strategy, where we're getting closer to our goal of returning bio reference to profitable growth in the post pandemic environment hopefully over the next three quarters, which is what we're working towards.
I will now turn the call over to our CFO , Adam logo to discuss our first quarter financial results.
Milestone payment and the remaining $7 million increase over 2022.
$12.3 million of research and development expense, primarily reflects the activities for <unk> development programs the.
The resulting operating income for the quarter ended March 31 was $19 billion or 37 $1 million improvement from the operating loss of $18 $1 million from the first quarter of 2022 amortization.
<unk> expense related are intangible assets was $16.4 million and $14.3 million, respectively for the 2023 and 2022 quarters.
Moving to our diagnostics segment, we reported revenue for Q1 2023 of $132.4 million compared to $286.6 million for the 2022 period. This.
This decline reflects the lower COVID-19 testing volume as the market has shifted away to rapid at hometown.
And also the 2022 period included revenue from Gtx, which we sold in April of 2022.
As early as discussed are focused on file reference remains in identifying profitable growth verticals and Max meeting maximizing our operating efficiency, we have strategically invested in our commercial resources and the higher growth specialty verticals and expect to begin yielding returns on those investments during the second half of 2023.
<unk>.
We continue to execute our reach expense reduction program. It by reference and as early as discussed we've also dental identified a number of near near and medium term growth programs that we expect to realize throughout 2023. We expect these initiatives will return bio reference to profitable growth.
Operating loss for diagnostics segment was 40 million for the quarter compared to 43.
$43 $5 million from the prior year, which included losses from <unk> that were offset by Covid.
Turning to our consolidated financial results for the first quarter, we reported an operating loss of $36 million compared to an operating loss of $72.4 million for the 2022 quarter net loss for the first quarter of 2023 was $18.3 million per <unk> per share.
This compares to a net loss of 55 $4 million or eight per share for the 2022 quarter.
Net loss for the first quarter of 2023 benefitted benefitted from realizing a milestone from <unk> for the sales levels achieved during 2022 as well as appreciation and <unk> stock price as of March 31.
As we look at the quarter ahead were providing the financing following financial guidance.
For a pharmaceutical segment, we've not assume the approval of ingen load by the FDA in our financial forecast approval would result in a milestone payment of $90 million. We have also not assumed U S region for in general will be in the gross profit share is the timing of that approval is not certain.
During the first quarter of 2023, the European region shifted to a gross profit share in going forward, both the European and Japanese regions will share in gross profit for the hgh franchise, consisting of <unk> and and gentlemen.
We also assume a stable FX rate for our X U S pharmaceutical businesses and we have seen a 10% impact on our business over the last 12 months as a result of those FX impacts.
For our diagnostics segment, we assume Covid testing will remain at current levels and continued to decline throughout 2023, and we have assumed consistent core testing volumes with growth in our higher margin oncology and women's health and urology specialty lines of testing.
We continue to carefully manage our investments and new R&D programs and commercial initiatives to align with our available cash resources.
As a result, we expect the following for the second quarter of 2023 total revenues between $165 million and $175 million with revenue from services between 127 and $135 million revenue from product sales between 32 and $36 million and other revenue between three.
And $6 million.
We expect Q2, 2023 costs and expenses to be between 245 and $255 million, including R&D expense between 2000 $430 million.
And depreciation and amortization amortization expense of approximately $25 million.
This concludes our prepared remarks. Thank you all for your attention and now operator, let's open the call for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speaker phone. Please pick up your handset before pressing the keys to withdraw your question. Please pass Star then too at.
At this time, we will pause momentarily to assemble our roster.
The first question is from Jeffrey Cohen with Ladenburg Talman. Please go ahead.
Hi, good afternoon, thanks to check in our questions.
I guess, firstly could we dig into.
<unk>.
Sure the prescription could you walk us through again, it almost makes a cold at all as far as the.
Showing a caution to a.
<unk>, what we do anticipate to do that as far as.
<unk> cost and timeline and then secondly.
Can you talk about <unk>, a little bit as far as what data is alter thus far and.
Mercury anyone out there I'm looking to Parkinson's as well.
Thanks, Jeff.
In terms of the cost sharing there's no real cost sharing or we have a $50 million upfront. We have a joint steering committee of the program between now and I N D that will actually continue beyond INV.
Currently all expenses incurred by alcohol are reimbursed by by.
Mark and the reason is very simple as that because we have advanced the products. So much that we are closed to IMD and we need to really continue that without disruption and so America's.
Access to continue to do this with.
Fill out in collaboration with them and obviously their approval.
To go forward and encouraged expenses.
Such as CMC expenses and others between.
Between now and the I M D.
To be reimburse bye bye.
By <unk> for those expenses.
And in terms of beyond the I N D.
It's really in the control of Merck, we may or may not be asked to continue to do certain things, but at this point I can't comment so fundamentally.
Cost us <unk> until Ind's pretty much soon bye mark all kinds of that time.
Terms of them as as you know the Denmark study that indicated a very very strong suspicion.
Suspicion suspicious the correlation and potential causation.
M S and the 10 million.
Army recruits that were followed for many years.
Is the strongest evidence that we have that beyond cancer. There are other indications.
Is also a body of suggested evidence that lupus Parkinson's Alzheimer's disease may also be targeted but the the connection there is not as strong as it is M S and cancer.
Okay. That's helpful. And then secondhand wondering if you could take a navarro reference a little business for some of the commentary sounds like you expect to turn by reference around toward profitability by the.
By the end of this year and perhaps could you talk about.
Any customer new expansion that's going on.
As far as a specific areas so perhaps.
The effect it may have one gross margin and and Erin.
Could you call is there any activity on on the genomic trying to smash trusting as well. Thank you for taking my questions.
It's a great question. So when we looked at by reference obviously the number one priority is to get a cost in line with our revenues as they are I mean, I don't think you should do manage a turnaround situation by banking.
Future revenues that I haven't materialized alright, so that's priority number one and we we are on our way to bring those.
Numbers revenues and expenses in line with each other the second part is what you would call growth potential. So we have multiple silos outside of the vertical Sir number one I think is four K. We are continuing to develop okay. The second is new tests I mentioned syntech.
For example, we are we are <unk>.
Going to market, a what do we call with minimal residual disease tests in conjunction with our oncology menu. What does that mean, if you talk to apologize just the number one question. They have right now with very effective drugs is is the disease gone is the disease controls can I.
I gave my patient.
<unk> a vacation from drugs that are very toxic in many ways and that can only be done by breathing looking at cancer DNA in the blog and with multiple techniques to look at whether or not there was any evidence of residual disease or what level and then you can actually monitor the patient.
Overtime, so that whenever there is an increase in the amount of residual disease, you can start treatment again or change therapy. Whatever so you can imagine that our goal is to provide a full portfolio in the <unk> that serves primarily liquid tumors I would say because that's where we are excellent we have a very.
Fast turnaround so we want to push that and in that context, we have been working out with large <unk>.
<unk> groups and I think we have some success there hopefully we can report that as a second quarter.
In terms of other fields of women's health is obviously a field in evolution, we have an ovarian cancer tests, though we have considered an.
Offering and looking at exactly how that will be marketed we are also thinking that in the health system relationships. The the ability for us to provide management to provide a comprehensive menu, including reference testing is another source that we have not maximize.
Last but not least I look at farmers and farm two angles, there that I'm very familiar with and and I'm.
Asking that we enter this field number one is the exploitation of the enormous amount of data we have and we have already government contracts from pharma companies that would like us to identify patients that would be eligible for certain therapies that the market because they have specific mutations in Juneau J now.
Others are asking us to identify patients for clinical trials, especially in the.
And the underserved population.
Those are really looking at us providing a diagnostic panels for their local trials and so on so.
I don't want to really tell you what.
What I expect in terms of revenues there because I don't know, but I think will report on that quarter by quarter and you'll be able to see that indeed, there is not just a equilibration of revenues versus expenses, but also as mentioned by by myself and by Adam We do have areas, where we're investing.
As well as areas, where we're cutting costs.
That's a very helpful. Thanks for taking all of our questions.
The next question comes from Mare Ray Craff with Jeffries. Please go ahead.
Hi, Thanks for taking my questions I was wondering if you can provide if there any more specifics you can provide that timing for an update related to pfizer's efforts with FDA for in general is approval for pediatric growth hormone and is there anything else you can say about the nature of the efforts that are ongoing between Pfizer.
F Yea.
Alright, I'm. Unfortunately, I you know I I have set before on.
Our hands somewhat tied on what we can and can't communicate but.
As we <unk>, we certainly expect a definitive decision.
Mmm this year if not this summer.
That's pretty much all we can say at this point.
Everybody remains highly optimistic.
For a forthcoming approval.
That makes sense makes sense and that's helpful.
If.
If in general it gets approved this year in the United States. How quickly do you think <unk> <unk> is there anything you can say about launch dynamics and expectations around that give advisers existing presence with Gino Trump and I guess what are your latest thoughts on on that.
No commercialization is 100 per cent of the hands of Pfizer what is it.
They'll be able to launch this year depends on a lot of a lot of things and how much pre work they have done so.
Unlimited and guidance until we get the approval in hand.
Okay makes sense in maybe the last question on in January .
I wanted to ask is if you're hearing anything about dynamics in in Europe reception has been there and any metrics you can share on on that if possible.
Yeah. So somewhere you know there's not there's not allowed to sure I know that the team continues to be enthused about the prospects in is because we highlighted there's a number of countries coming online where they are getting regulatory approvals and launching.
But beyond beyond that I think we need to have our partners advisor.
I.
Okay, I'll stop there and hop back in the queue. Thank you. Thanks for.
The next question is from Yale Jam with Laidlaw and company you May go ahead.
Good afternoon, and thanks for taking the question.
Just get some sense of in terms of the dining out the business that what are the cost savings still ongoing or you'll pretty much finished up part and I'm more in to the revenue growth hug directions.
No we are still working on it cost savings Jan we we we are.
You know continuously since basically a year ago going through the entire cost structure and and obviously working on it you'll hear more about that at a subsequent quarters. So we're not just focused on growth we are still continuing to understand.
Excuse me a cost structure in our price for obsession our customer assertion doing an enormous amount of work on contribution margins does biter.
Understanding the product mix and that is ongoing and we are taking action in many areas actually to reduce costs not stopping at this point.
The next question is that the <unk> residual disease tapping.
My understanding is that probably be a number of.
Ah So you said liquid humor's hat.
Has been <unk> <unk>, <unk>, <unk>, <unk>, <unk>, but not all of them. So do you guys.
I'll do you guys have continued to explore what over there with a new <unk> and others.
That's a very good point and you know we are very confident in liquid tumors. We think we have a good grasp of that I've looked at the data I think there's a good sensitivity. When you talk about myeloma leukemia is liquid tumors were very confident the problem is more into other types of <unk>.
Tumors, where you have a solid component you're not sure always that the DNA minimal residual disease will circulate to.
To give you a good result, so so we are focusing but extending very slowly very carefully but again our main revenue oncology. If you really look at.
Where we are strong it's really in the liquid cancer area Arena.
And that's what we need the last part I'm.
Oh I'm sorry, okay.
Maybe the last question here.
Hey, the last question is for the agenda for Adam that when you think that the venture to you will <unk> revenue or profit sharing and a separate a lie ended up P&L or does something.
Or wait until next year.
And thanks, Yeah.
Yeah.
So thanks al So I would expect that once it becomes individually materials, we break it out and some of the disclosures Uhm you would expect that perhaps and once we have a U S region in the gross profit sure become more significant but it could be later this year or in the next year.
Sure.
Okay, Great that's very helpful and congrats on all the progress.
The next question is from knee Chinn with H C. Wainwright. Please go ahead.
Mmm.
Mister Mister tenure on the podium you can ask you a question.
Alright. Thank you for taking my questions could you give us some additional color the strange large task.
And what's the what would be its <unk> and how the <unk>.
It's sales.
I'm, sorry, I couldn't hear which tests that you're referring to the.
The Roche diagnostics, Saint <unk>, plus <unk>, well I'll tell you where the beginning of the marketing we're getting good response for the task you know, it's a it's a sort of a reflection or excuse me understand when you have a positive H P via resolved to really need to know if that's.
From the high risk variance you know where.
Where the six and seven are present in themselves and so that's really what happens are experienced so far is about for all the <unk>.
Vicious HPV results about 6%.
Really require a a.
Move over to <unk>.
Alright, so I cannot tell you what the numbers are we just started marketing it.
Okay.
That is <unk>.
I mean, I mean, this test is prescribed by a physician to whoever she or he considers at high risk for H P. V infection will be obgyn's generally are ordering deca, yeah, and they are the ones, who make a decision whether the patient needs to have an immediate procedure or it can be.
Followed how far how how often so.
If we have a negative result wait maybe two years.
If it's a positive results did need to decide but.
Right away or give us a little more extension.
That's a few months before before repeating the test.
So it's <unk>.
If you look at the total market.
These tasks for cervical cancer prevention.
As I said, it's a low percentage that would be.
Applicable to the patients who have the need for that test.
5% to 6% is what I'm told that I cannot guarantee you that.
Okay. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Dr. Philip Frost for any closing remarks.
I'd like to thank everyone for participating in this session and we look forward to being with you again.
The next quarter.
Thanks again.
[laughter].
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.