OPKO Health, Inc. (NASDAQ:OPK) Q3 2023 Earnings Call Transcript
OPKO Health, Inc. (NASDAQ:OPK) Q3 2023 Earnings Call Transcript November 6, 2023
OPKO Health, Inc. misses on earnings expectations. Reported EPS is $-0.11 EPS, expectations were $-0.09.
Operator: Hello and welcome to the OPKO Health Third Quarter 2023 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would like now to turn the conference over to Yvonne Briggs. Please go ahead.
Yvonne Briggs: Thank you, operator. Good afternoon. This is Yvonne Briggs with LHA. Thank you all for joining today's call to discuss OPKO Health's Financial Results for the Third Quarter of 2023. I'd like to remind you that any statements made during this call by management other than statements of historical fact, will be considered forward-looking and as such will be subject to risks and uncertainties that can 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 its subsequently filed SEC reports. This conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, November 6th, 2023.
Except as required by law OPKO 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. Elias Zerhouni, Vice Chairman and President of OPKO will then provide an overview of OPKO's pharmaceutical business as well as BioReference Health, after that, Adam Logal, OPKO's CFO will review the company's third quarter financial results, and then we'll open up the call to questions. Now I'd like to turn the call over to Dr. Frost.
Phillip Frost: Good afternoon and thank you for joining us today. The third quarter was quite active at OPKO with several key accomplishments. In September, we announced that ModeX was awarded a contract from the Biomedical Advanced Research and Development Authority known as BARDA to develop novel multi-specific antibodies against viral infectious diseases that are deemed to be public health threats. The BARDA contract provides $59 million of initial funding for the development of multi-specific antibodies against known variants of SARS-CoV-2 and another $109 million in funding may be available to develop multi-specific antibodies targeting other viral antigens, pathogens that is such as influenza. This non-dilutive funding provides ModeX with significant financial support to advance its extremely promising pipeline with the potential to provide benefits for patients worldwide.
This BARDA award represents a second major collaboration for ModeX in 2023 and is further validation of its differentiated and valuable technology platform. You may recall that earlier this year, ModeX entered into an exclusive worldwide license and collaboration agreement with Merck to develop its nanoparticle vaccine candidate for Epstein-Barr virus. As for NGENLA, our once-weekly injectable growth hormone therapy, it is now approved in over 48 countries, including the US as we announced in June. Pfizer, our global commercial partner launched NGENLA in the US in August. In addition to launches today in over 23 major markets including Japan, Germany, the United Kingdom, and all other priority global markets. We expect to see a material ramp-up in sales for NGENLA as Pfizer increases its market penetration globally.
At our OPKO Biologics unit in Israel, where NGENLA was developed, work has continued on other long-acting peptides utilizing new technology. One, GLP-2 to treat short bowel syndrome is being developed into a once-daily oral form jointly with Entera who's oral peptide delivery system containing parathyroid hormone recently successfully completed a Phase 2 trial. We're also considering work with Entera, one of our oxyntomodulin peptides for weight loss. Our profitable OPKO Ibero-America unit continues to perform well as does FineTech, our small specialty API company in Israel. EirGen, our pharmaceutical development and manufacturing company in Waterford, Ireland is also doing well and is about to embark on a growth program. At BioReference Health, our cost-cutting initiatives continue as we are focused on returning this segment to profitability in the near term.
In addition, we are working to increase revenue by enhancing our test menu offering and expanding our customer base. With that overview, I'll turn the call over to Elias to provide further discussion and commentary on our pharmaceutical and diagnostic businesses. Elias?
Elias Zerhouni: Thank you, Phil, and good afternoon, everyone. As Phil said, the third quarter has been quite busy for both the pharmaceutical and diagnostic segments of OPKO Health. As Phil mentioned, we were delighted to announce the significant contract awarded to ModeX Therapeutics by the Biomedical Advanced Research and Development Authority, BARDA. You should know that BARDA is part of the administration for strategic preparedness and response at the US Department of Health and Human Services and this funding is a part of Project Next-Gen, which is dedicated to advancing innovative vaccines and therapeutic programs against COVID-19. The contract includes an initial $59 million to enable research, development and clinical evaluation through a Phase 1 study of potent novel ModeX multi-specific antibodies against known variants of SARS-CoV-2, which remain a persistent threat for the millions of immunocompromised patients who may not develop sufficient immunity after vaccination and will need that support if you will for treatment and prevention of COVID-19.
Our proprietary MSTAR multi-specific antibodies also reduce the possibility of viral resistance, which has made previous mono-specific antibodies ineffective over time. MSTAR is a flexible plug-and-play platform able to incorporate up to six independent antibody binding sites into a single molecule and this capability dramatically expands the prevention and therapeutic potential of antibodies against many viral diseases while enabling rapid responses to prevent or treat emerging infections and viral variance. Based upon the achievement of certain milestones, additional funding of up to $109 million may be available from BARDA to develop other multi-specific antibodies targeting other viral pathogens, such as influenza. And as part of the research program, gene-based delivery methods for the multi-specific antibodies will be developed using mRNA or DNA vectors to supplement the body's natural protein production processes.
The BARDA contract, as Phil mentioned, came back six months after the announcement of our collaboration with Merck to develop MDX-2201, our Epstein-Barr virus multivalent nanoparticle vaccine. We're pleased to have secured these two major strategic relationships to date and believe this achievement further validates ModeX's innovative multi-targeting approaches, increasing the interest in our proprietary technology. As a quick overview, our EBV vaccine program with Merck leverages ModeX's nanoparticle based vaccine platform, enabling simultaneous immunization against four major EBV proteins. This multivalent approach holds potential to protect against infection by this virus, which affects up to 95% of the global adult population during their lifetime.
Importantly, over 200,000 cases of related cancers per year and multiple sclerosis are associated with infection by this virus and we're now working with our partner Merck on IND-enabling studies which are progressing extremely well. In addition, our anti-viral multi-specific antibodies program focused on the treatment and prevention of HIV is progressing in partnership with the NIH, our first-generation candidate has been evaluated in the Phase 1 trial and clinical data will be reported in the near future. We have also developed next-generation candidates for long-acting HIV prevention and treatment that offer up to a 10-fold improvement in potency and breadth of antiviral activity against the majority of globally circulating HIV strains. This is an important program as there are currently no vaccines or antibodies that can provide long-acting protection and treatment for patients who require treatment options beyond small molecule-based therapies.
In parallel, we have also advanced our immuno-oncology programs focused on hard-to-treat solid tumors as well as leukemia and lymphoma. Our multi-specific anybody candidates are designed to optimize T cell function while preventing tumor antigen escape. These programs are now in the final IND-enabling preclinical stage with the expectation that at least one program will enter the clinic in 2024. I also would like to reiterate Phil's comments about NGENLA. We're delighted with the continuing momentum of Pfizer's global launches of the long-acting growth hormone treatment, including the US in August, and Adam will provide further detail on the financials and we look forward to keep you -- keeping you updated on the progress here. So now let me turn to RAYALDEE, our treatment for secondary hyperparathyroidism or SHPT in adults with Stage 3 or 4 chronic kidney disease or CKD and low vitamin D levels.
Sales increased over the prior year quarter as the number of prescriptions continued to grow. More importantly, recently our team presented several posters highlighting favorable RAYALDEE clinical data at the American Society of Nephrology Kidney Week. One poster reported late-breaking clinical data, indicating that early sustained and effective treatment of secondary hyperparathyroidism with RAYALDEE is associated with significantly slower progression of CKD in pre-dialysis patients. In effect delaying the onset of dialysis. Another poster presented data demonstrating that effective control of SHPT was achieved with RAYALDEE in both randomized clinical trials and in a real-world clinical evidence trial supporting early initiation of SHPT treatment with RAYALDEE to delay disease progression.
In addition, a Phase 3 clinical trial with RAYALDEE in Mainland China began in late Q3 managed by Nicoya Therapeutics of Macau and who is the OPKO's partner for the development and commercialization of RAYALDEE in China, Hong Kong, Macau, and Taiwan for the treatment of secondary hyperparathyroidism in patients with Stage 3 or Stage 4 CKD. As mentioned by Phil, our pipeline of long-acting products, similar to NGENLA remains active. You heard about OPKO Biologics entering into a research collaboration agreement with Entera Bio Limited to develop oral peptide tablet formulations for obesity and intestinal malabsorption syndromes. Under the agreement, OPKO will supply its long-acting GLP-2 peptide and certain oxyntomodulin analogs for the development of oral tablet formulations using Entera's proprietary oral delivery technology.
Treatment with glucagon-like peptide-2, analogs has been shown to improve the absorption of nutrients in patients with short bowel syndrome and reduce parenteral support requirements. Oxyntomodulin is a naturally occurring peptide hormone found in the intestine with glucagon-like peptide-1 GLP-1 and glucagon dual agonist activity that suppresses appetite that reduces weight loss. And we have developed several proprietary modified oxyntomodulin analogs as potential candidates for treating obesity, including an injectable pegylated peptide that demonstrated significant reductions in weight loss and decreased plasma triglyceride levels in the 420 patient Phase 2b study. Our injectable oxyntomodulin analog which completed the Phase 2 studies in the US is being now advanced by LeaderMed, our partner in Asia to initiate Phase 3 studies for diabetics and obesity in China and for diabetics in Southeastern Asia in the first quarter of 2024.
LeaderMed also plans to launch clinical studies of the long-acting Factor VII, which uses OPKO Biologics CTP technology in the second quarter of 2024. Now, let me shift gears and I would like to turn to our Diagnostics segment. We've made great stride and we have reduced our operating loss by 41% sequentially from Q2 to Q3 2023, through both expense reduction and revenue growth, so a 41% improvement from Q3 relative to Q2. And we continue to implement our reach initiative to improve efficiencies, enhance productivity, and reduce costs. And we're particularly focused on driving growth on BioReference in our higher-value specialty testing segments including oncology, women's health, hospitals and health system as well as urology through our proprietary offering the 4Kscore, while continuing to see growth in standard -- clinical -- standard clinical testing.
We have finalized new service agreements with several new large clients starting in the fourth quarter in particularly in our oncology division, GenPath, which continues to build, what I consider best-in-class cancer testing portfolio by launching innovative testing that is clinically relevant to both physicians and patients as well as pharmaceutical companies and clinical research institutions. Additionally, in the fourth quarter, we'll be launching a cutting-edge homologous recombination deficiency test, which is really important to provide insights into genomic instability, and because PARP inhibitor therapies are really related to the presence or absence of genomic instability in terms of their efficacy, it will really guide the eligibility of patients for PARP inhibitor therapies for various cancers.
We're also set to unveil an expanded hematological malignancy panel that reinforces our position as the leader -- as a leader in this area. We've also launched a new service line offering access to our high-quality, reliable, and comprehensive data assets and analytics. We realized that we had value embedded in the thousands of tests that we have performed in genomics and this offering caters to a wide range of pharmaceutical and clinical research organizations and has already led to new sources of organic revenues. The 4Kscore test continues to perform, supported by its recent inclusion in the 2023 American Urology Association guidelines for early detection of prostate cancer and follow-up after PSA screening and for initial and repeat biopsy risk stratification.
4Kscore also received additional coverage under Avalon Healthcare Solutions, which manages many state and regional health plans as well as Aetna's Medicare Advantage Plan and EmblemHealth. BioReference has also expanded its market access and our team has also secured new key payers participation agreements in recent months, including in-network status with CareSource, one of the largest managed medicaid payer in the country, as well as all of EmblemHealth patients. And in parallel, our revenue collection processes continue to make great strides since the launch of our revenue cycle management program in Q4 of last year. So in conclusion, we expect that these efforts will further improve financial metrics and return this segment to profitability in the next few quarters.
I will now turn the call over to Adam Logal to discuss our third quarter financial results. Adam?
Adam Logal: Thank you, Elias, and good afternoon, everyone. Starting with our Pharmaceutical segment, revenue increased to $46.9 million for the third quarter of 2023 from $36.9 million for the comparable period of 2022. Revenue from RAYALDEE and our International Pharmaceutical businesses increased by $8.3 million dollars reflecting improvements in overall prescriptions and net price as well as improvements in our foreign currency exchange rates in Chile and Mexico. Further, revenue increased as a result of our gross profit share payments from Pfizer, due to increased revenue from the hGH franchise in the European and Japanese regions before considering any US profit share generated from the launch of NGENLA. In the US, as a result of the initial launch in mid-August, Pfizer's delayed in reporting our gross profit share amounts, and as such, none are included in our third quarter results, but will be caught up in future periods.
Costs and expenses were $72.3 million for the third quarter of 2023 compared to $65.2 million for the 2022 period, reflecting principally increased revenues and the cost associated. Research and development expenses for the third quarter of 2023 were $18.9 million compared to $17.6 million for the comparable period of 2022. This increase reflects activities for our ModeX development programs, partially offset by decreased spending on our NGENLA development activities. The resulting operating loss for the quarter ended September 30th, 2023, was $25.4 million or $2.9 million improvement from the operating loss of $28.3 million for the third quarter of 2022. Amortization expense related to intangible assets was $16.5 million for both the 2023 and 2022 quarters.
Moving to our Diagnostics segment, we reported revenue of $131.7 million compared to $142.9 million for the 2022 period. This decline reflects lower COVID-19 testing volumes. Costs and expenses decreased by $31.6 million to $160.8 million for the third quarter of 2023, down from $192.3 million for the 2022 period. Operating loss for our diagnostics segment improved by $20.4 million or 41% to $29.1 million compared with $49.5 million for the prior year. Depreciation and amortization expense included in operating loss were $8.4 million and $8.7 million for the 2023 and 2022 periods respectively. Sequentially, revenues increased by $4.6 million or 3.6%, while costs and expenses declined by $10.5 million or 6% reflecting the focused commercial efforts and expense reduction initiatives Elias described earlier.
The team at BioReference continues to focus on growing the specialty lines of business while reducing costs and expenses while enhancing operating efficiencies to continue to improve our operating margins and return to profitability. Turning to our consolidated results for the third quarter, we reported an operating loss of $64.4 million compared to $87.8 million for the 2022 quarter. Net loss for the third quarter was $84.5 million or $0.11 per share compared to a net loss of $86.1 million or $0.11 per share for the 2022 quarter. Net loss for both periods were negatively impacted by the mark-to-market losses from our holdings in GeneDx stock with declines of $8.3 million and $30.6 million respectively, while the 2022 period benefited from an income tax benefit of $40 million.
As we look at the quarter ahead, we're providing the financial guidance with the following assumptions. For our Pharmaceutical segment, for the first nine months of 2023, Pfizer reported approximately $349 million of global Genotropin sales. For the four fourth quarter, we have assumed $8 million to $10 million in gross profit share from our partnership with Pfizer. We assume stable foreign exchange rate for ex-US pharmaceutical business and we expect R&D expenses to reflect higher activities related to ModeX, partially offset by our recently announced BARDA agreement, as well as lower costs and expenses related to the wind-down of our clinical operations for the ongoing open-label pediatric extension studies for NGENLA. For our Diagnostics segment, we have assumed consistent core testing volumes with growth in our higher margin oncology, women's health, and urology specialty lines of testing, as well as a slight increase in the average per-patient collection amounts due to our revenue cycle management initiatives, partially offset by the impact to the year-end holiday season.
Further, we anticipate our costs and expenses in the Diagnostics segment to be aligned with the sequential quarters level of spend. As a result, we expect the following for the fourth quarter. Total revenues between $170 million and $180 million, revenue from services between $126 million and $132 million, revenue from product sales between $33 million and $36 million, and other revenue between $8 million and $12 million inclusive of the estimated Pfizer gross profit share. We expect Q4 2023 costs and expenses to be between $235 million and $245 million including R&D expense between $18 million and $22 million and depreciation and amortization expense of $26 million. That concludes our prepared remarks. Thank you all for your attention and now, operator, let's open the call for questions.
Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Jeffrey Cohen of Ladenburg Thalmann & Company. Please go ahead.
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