OPKO Health, Inc. (OPK) Earnings Call Transcript & Summary

Good morning, everyone. I'm Steve Rubin. I'm the Executive Vice President of OPKO Health, and I will be presenting the first half of this deck; and Jon Cohen, who is the Executive Chair of our Laboratory and Diagnostics business, will be presenting the second half. Thank you all for coming. Forward-looking statements, if you'd like to read them. So OPKO is diversified across several business assets, makes us a little bit unique. So we have marketed pharmaceuticals, leading off with RAYALDEE that we have launched in 2016. It addresses an unmet need in the chronic kidney disease market. Revenue in the third quarter was about $7.4 million. As I will cover later, it's been growing fairly significantly of late, which we're pleased to see after a relatively slow start. It's partnered with Vifor Fresenius outside the U.S. and is partnered with JT-Torii or Japan Tobacco in Japan. As the pipeline, I'll talk a lot about one of the most exciting ones. We announced positive data on our Long-acting Human Growth Hormone in October. We completed a successful Phase III pediatric trial, that was announced. And we have an ongoing registration study in Japan, and that's expected to be completed in the first quarter of next year. There's further products in our pipeline I'll talk about. So it's a fairly rich and robust pipeline of late stage and early stage assets. The diagnostics and laboratory side is a very significant part of our business. Revenue in the third quarter alone last year was $181 million. It's about a 300-person sales and marketing team, esoteric -- driving esoteric testing, which accounts for about 70% of revenue. It's a recognized leader to its GeneDx subsidiary in genetic testing. Growth hormone. So we're very proud of this. We achieved our primary endpoint with Somatrogon, which is a once-weekly growth hormone replacement therapy. It was proven noninferior to daily GENOTROPIN with respect to height velocity after 12 months. So height velocity at 12 months of treatment was higher in the Somatrogon group, 10.12 centimeters a year; than in the somatropin, our GENOTROPIN group, which was 9.78 centimeters a year. We also achieved all the secondary endpoints: change in height standard deviation at 6 and 12 months or higher with Somatrogon in comparison to somatropin. And at 6 months, the change in height velocity was higher with Somatrogon in comparison with somatropin. For safety, it was generally well tolerated in the study and comparable to that of somatropin dosed once-daily with respect to the types, numbers and severity of the adverse events observed between the treatment arms. We have partnered this with Pfizer. They will commercialize the product. They're also in charge of the regulatory side, so they are preparing on submitting the BLA. They are highly motivated to maintain their global hGH franchise of GENOTROPIN, which is even at last year, 2018 -- I don't have their '19 numbers yet, it was $560 million globally. They're 1 of 7 players in that daily growth hormone market. So our technology, why we think it makes it a great product to extend the half-life of proteins, it consists of a natural peptide sequence. It's something that's found in all of our bodies. It's 28 amino acids of the C-terminus peptide of human chorionic gonadotropin hormone. Now why is that important? Because we believe that if you take a product that's -- a peptide that's found in nature that your body is not going to believe that it needs to create antibodies against it. So that's the theory behind it. There's also one product already on the market using this technology, it's owned by Merck called ELONVA. It's been on the market for 7 years and safely used using the same CTP technology. We did a very broad study with Pfizer's guidance. So now we can get a very universal approvals across wide areas. So as you see with 83 clinical sites across 21 countries, it comes in Europe, South America and parts of Asia. And as I mentioned, we have an individual stand-alone Japanese study ongoing. Structure of the trial, it's 1:1 randomization. Basically a 12-month trial. We use Somatrogon with a 0.66 mg per kg per week against the daily GENOTROPIN as it is used in practice today. 224 subjects enrolled in the study. And over 96% are continuing the open-label extension because the study has ended. And we'll continue that open-label extension with all patients on Somatrogon until market approval. Again, as I mentioned, the primary endpoint was height velocity, which we met, and the secondary efficacy endpoints here, which we met as well. So what are the next steps? So as I mentioned, Pfizer is working on the BLA submission. That's anticipated to be filed with the second half of 2020 or early in the second half. The one thing left to do there is completion of analysis of immunogenicity and the safety data from the Phase III study and the open-label extend studies. We've already submitted for and received approval for acceptance for 2 oral presentations at the upcoming Annual Endo Society Meeting, where we'll present all of our data. Those 2 studies -- those 2 presentations, you can see here. One is results of the pivotal Phase III and the other is a specific study about the IGF levels following administration of our drug. European submission is ready to go as well. The only gating factor there that needs to be completed is an outcome study, which is basically a questionnaire study that demonstrates the benefits and compliance using a once-a-week injection versus once a day. We expect that study to be completed by Q3 of this year. And the NDA submission in Japan is expected to be completed in the first half of 2021. We expect that trial to complete sometime this first quarter. Diversify on our market pharmaceuticals, we have RAYALDEE on the market, as I mentioned when we started these conversations. And it is the first and only extended-release prohormone of the active form of vitamin D. So a once-daily formulation of prohormone 25D3. It addresses significant unmet need. It's aimed for the phase -- stage 3 and 4 chronic kidney disease, stage 5B in dialysis. And it's really the only product approved within that area to treat secondary hyperparathyroidism in those patients. It effectively reduces the levels of PTH. It increases the serum D with a safety profile similar to placebo. In other words, it doesn't increase levels of phosphorus or calcium. And that you'll see, that is very important. If you try to use the hormone products, even according to KDIGO guidelines, you can result in increased phosphorus -- increased calcification, which can result in heart disease. It's starting to show some nice legs. The total prescriptions increased 83% in Q3 of last year compared to Q3 the previous year and continue to show sequential growth with a 16% increase compared to the prior quarter. There are no other good options for physicians in this space. They're either going to use nutritional Vitamin D that simply doesn't work or they could try to use the active products, which, as I've mentioned, could be actually dangerous. Chronic kidney disease is still a major cause of death, the ninth leading cause of death. It's ahead of both breast and prostate cancer, and the prevalence is increasing as we unfortunately have a fair amount of obesity and diabetes and hypertension. So this shows graphically some of the growth. You can see the quarterly growth with the top chart. You can see it's a nice growth. And you can see that Q4, actually, if you can notice there is actually even better. We -- it performed at a higher trajectory than we expected it to be. We haven't announced those results yet, but we had a very nice fourth quarter. And year-to-year growth, you can see we have a 92% compounded growth rate, and we expect that rate to continue. Actually, we expect it to accelerate. So our commercial organization nearly consists of about 82 players, 82 people. And we have about 86% of U.S. lives covered by insurance, so without prior authorization or restrictions. Vifor Fresenius expects to launch -- European approvals and launch in mid-2020. We're also doing an ongoing study for stage 5 in RAYALDEE. So that's a Phase II open-label trial, approximately 44 patients treated for 26 weeks. We believe it will be effective in the dialysis market as well. We expect to read out some top line data in that study towards the end of this quarter. Quickly going into some of the other assets we have within the nephrology space. We have a SARM, selective androgen receptor modulator, that is basically a safe androgen. It's been studied in other indications. We want to study it in the chronic kidney disease market because sarcopenia or muscle wasting is a huge problem with this population. So that will be a Phase II/III because it has not been introduced in this patient population yet. This goes a little bit on the clinical plan. And now also oxyntomodulin. We also finished with oxyntomodulin, which is for diabetes -- type 2 diabetes and obesity. We had some nice data on weight losses, you'll see, better than placebo. This is a crowded space and expensive trial. So if we're going to bring this forward, we're going to partner it or we'll take it into limited population, probably to chronic kidney disease, focused on that particular area, make some trial, smaller more manageable for us and it also gives the nephrologists a specific tool. So I'm running a little short on time here because I know Jon has got a lot to talk about, but let me talk quickly about our rare disease pipeline. So in that same technology in place that we developed growth hormone, we have several products that are IND-ready, but some of these are preclinical at the bottom. We have hemophilia, which is for a Factor VIIa that do have Phase I and IIa study on a subcu version of Factor VIIa. We honestly thought this market would shrink considerably with Hemlibra, the Roche product, which, in fact, it did. But it's still a very significant market. I mean NovoSeven still has about $700 million in sales because it's the only -- for breakthrough bleeds and surgeries, you still need to have clotting factors. So we've had a lot of inbound inquiry and we'll probably push that forward. In the IND base, I don't know, they'll push all 3 forward this year, but probably the most interesting one is the bowel disorders or the GLP-2 agonist for short bowel disease. But we also have for IGF-1 deficiency and acromegaly, these are rare diseases in children. Very lucrative markets, shorter studies, shorter population. So with that, I'll -- if people want to see our slides, they're available on deck. You can look through some of the data and why we think these would be a very advantageous programs given what's in the market. But with that, let me turn it over to Jon.

Thanks, Steve. My name is Jon Cohen. I'm the Executive Chairman for BioReference for GeneDx. So in the last 2 years, we've worked to deliver our transformation plan. Revenue has stabilized and operations have been scaled to support profitable growth. We have substantially reduced our spans and layers of management, while at the same time, improving our talent by making significant investments in new hires. We recruited many new members to the leadership team, which now represents a group of veteran laboratory executives with long records of success in the industry. Our initiative to improve payer access and broaden our market share has been successful as we now cover over 80% of the lives in the U.S. These activities have set the table for us to move forward with an aggressive and focused commercial strategy to grow the top line and improve profitability. Our growth plan is to leverage our existing expertise in technology, add additional talent where needed and make targeted investments in innovative technology-focused on 4 specific initiatives: one, in 3 physician subspecialty groups I'll talk about; patient empowerment and experience; strategic partnerships; and genetics as related to GeneDx. Our subspecialty physician focus will be in areas where we continue to build on areas of deep expertise and advanced technology solutions: oncology, urology and OB-GYN. Let me get to oncology. As one company, we offer comprehensive solutions at each stage of cancer care and management, including screening for hereditary cancers, diagnostics for solid tumors and hematological malignancies and cancer genomics. This continues to position us as the one-stop solution for cancer centers, large oncology groups, hospitals and health systems. More specifically, cancer genomics, next-generation sequencing and molecular, is expected to grow over 30% for the next 5 years and remains one the fastest-growing oncology testing areas. Currently, 75% of all oncologists order NGS testing to guide treatment decisions. Gene evolution continues to drive demand for testing that is specific to the most common 10 cancer types. And cancer centers and hospitals without the funds to invest in these technologies are requesting comprehensive solutions to stay competitive. Our investment in a larger NGS back -- backbone will help us to build a best-in-class portfolio to service all of these 10 or more tumor types. In addition, hematological oncology testing, hemonc, continues to grow at about 4% to 6% annually, one of the fastest-growing oncology segments. The investment in the NGS platform and our current strength in hemonc, which includes cytogenetics, FISH, FLOW and IHC positions us to grow in this segment of the market. Urology is our second area of expertise. Our comprehensive offering to urologists include 4Kscore, germline testing for prostate cancer, full clinical laboratory services and pathology. With our urology-designated sales force, we will continue to make substantial investments to grow the 4Kscore business. Novitas, our Medicare MAC, issued positive coverage for Medicare patients on December 30, 2019, several weeks ago. 4Kscore has a significant role in the treatment and work-up of men with elevated PSA values. We know that 75% of men undergoing prostate biopsy based on an elevated PSA have no cancer or indolent cancer. There is a 40% to 50% cost savings reduction avoiding MRI, biopsy or other treatments. The 4Kscore has greater than a 93% negative predictive value for aggressive prostate cancer and can reduce the biopsy rate by about 65%. As the proprietary owner of the test, we believe it represents a significant growth opportunity for 2020 and going forward. In addition, the diagnosis of hereditary prostate cancer is emerging as a critically important issue in the early monitoring and treatment of aggressive prostate cancer. With over 175,000 new cases per year, 34% of those cases, 60,000 men, may be candidates for germline testing. With the new NCCN guidelines around genetic testing for prostate cancer, possibly 3.1 million men in total may need to be tested. With our deep expertise from our subsidiary, GeneDx, and our designated urology sales force, we view this as another significant opportunity. Finally, as a full-service clinical laboratory and pathology laboratory, we provide one-stop service for the entire spectrum of urological diagnostic needs. The third area of subspecialty expertise is women's health. For over 10 years, BioReference's women's health has processed over 5 million accessions and provided testing for over 3 million women patients through more than 20,000 OB-GYN providers across the United States. Our women's health laboratory is the single source solution for large OB-GYN groups with hundreds of providers. We address the entire continuum from adolescents through the reproductive years, mature years and senior women's needs. With specific expertise in cervical cancer screening paps, sexually transmitted diseases, reproductive health and hereditary cancers listed here, similar to our oncology offering and urology offerings with our designated sales force and our comprehensive offering, it differentiates us in the market as large group practices are looking more and more to deal with one source for all of their diagnostic needs. The next area of focus is genetics with our subsidiary, GeneDx. GeneDx was founded -- sorry, GeneDx was founded in 2000 to provide germline diagnostics to the underserved, rare and ultra-rare market. While each disease is rare, NIH estimates that there are 7,000 rare diseases affecting 1 in 10 people. More than 3,000 rare diseases have had a clear genetic basis -- that's interesting. And over 100 are being discovered every year. GeneDx has diagnosed over 2,400 unique genetic conditions and published over 100 novel genes in the last 5 years. We have historically grown the business by expanding our menu and focusing on high-complexity testing on the leading edge of technology. At the beginning of the decade, in 2010, we made a long-term bet on exomes and now exomes is our highest revenue test with a 40% increase in growth over the last 5 years. We have sequenced over 190,000 clinical exomes to date, the largest clinical exome cohort in the world. We know that genetic diagnostics are an underutilized resource of value in the health care paradigm, and early molecular diagnosis short circuits the diagnostic odyssey. It reduces total health care spend and leads to better outcomes through early intervention, management and treatment. Exome testing is the fastest path to genetic diagnosis and increasingly cost-effective as the first-tier test. In 2010, microarrays were the germline diagnostic standard with a $3.8 billion global market. Exomes are not only replacing it but expanding that market. Whole genome and exome have equivalent overall clinical utility, but whole exome will become inevitable as sequencing continues to drop. Lower-cost whole exome will render most germline test obsolete. However, managing the scale and complexity of whole genome testing data is a significant challenge, but GeneDx has a strong record of growing from single gene to exomes while rapidly increasing volumes. Lower-cost whole genome will enable new testing modalities and open new market opportunities for GeneDx to make genomic health information an integral part and routine part of health care for millions of people. Someday, every baby will be screened for virtually every known genetic disease at birth. That genetic information captured at birth will be their companion for life. Currently, 3.8 million babies born every year in the U.S., of those, 150,000 are admitted to the NICU for a cost of approximately $6 billion. Rapid diagnosis by whole exome leads to shorter stays, better outcomes and significant savings. GeneDx has the world's largest experience in whole exome testing having diagnosed nearly half of all NICU patients tested in the United States to date. We have led the way with whole exomes, we will lead the way with whole genomes. The third area of focus is strategic partnerships. We now have developed an infrastructure and expertise to aggressively pursue strategic relationships with federally qualified health centers, unions, correctional facilities, hospitals, accountable care organizations, independent physician organizations, urgent care centers and large medical groups. We now can develop custom and tailored solutions for our partners to improve and enhance their clinical lab services and provide them with opportunity to decrease their costs, increase their lab revenue and improve profitability. We have seen significant interest in these types of creative solutions and have closed several deals in the last couple of months with a robust pipeline of deals in the works. We expect to make a couple of more deal announcements within the next several months. Finally, our fourth area of focus is the patient experience. The centerpiece of our strategy is a commitment to the best possible patient-centric experience. We believe that the commercial laboratory industry is mostly commoditized and viewed by most stakeholders as a utility to aid physicians in treating their patients for which they should pay as little as possible. We will differentiate ourselves in the market with an obsession to patient services and convenience. The launch of our patient portal has had significant success with increasing numbers of patients accessing their results every day. Our direct-to-consumer offering, mylabology, was launched recently with initial offerings around sexually transmitted diseases, sexual health, thyroid health and basic health. We will continue to add to this platform within the next year. In the next several months, we will also announce new technology investments in this area and partnerships in this space. The journey around improving patient experience has just begun. Our goal is to have patients ask their physicians to have their labs performed at BioReference and to choose us directly as the lab of choice. Thank you.

Thank you.

Thanks.