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

Great. And maybe, Steve, you can describe the current daily hGH injectable market. I believe Pfizer is either the #1 or #2, maybe #2 player selling Genotropin. How do you expect the market will transition to long-acting hGH?

So the growth hormone market as it exists today is gaining [ gap ]. It's been that way for over 25 years. It's made up of 7 players, all of which is the same product, recombinant growth hormone. The only difference really is, is it a pen. Some are [ fruit-based ]. Some are [ glycolyzed ], but it has the same product. It's been that way for the added innovation since it was invented or it first came out in the market 25 years ago. Actually, the first product was Genotropin. So Pfizer's now is -- Novo actually is the leading player in the [ genome-based product game ]. Ours is actually #2 or #3 but still high sales of over $500 million a year worldwide. Again, that's 7 competitors. The market is a little over $3 billion, depends on who you speak to, but anywhere from $3 billion to $3.6 billion, dominated by [ 3 ] indications for adults as well. We expect really rapid conversion from the daily to the long acting. And that's typical of any of drug that are going from to long acting, you can imagine especially for children who will go from 365 shots to 52 a year. And for a child having to deal with sleepovers, camps, staying out with friends and bringing it to sleepovers, even combined, we expect very, very rapid turnover of -- to long acting. Well, let's assume there's -- right now, Ascendis is slightly ahead of us in the United States, in Europe with their submissions. Have not started in Japan yet. So we should be very close behind them by a matter of months. And then Novo is behind all of us, is currently enrolling the global pediatric studies that they have. With approved results in the United States, I do not believe they have launched their long-acting product in the United States. So let's say you take that market, that $3.6 billion, and say, by all means, increased with the ease of medication and people staying on product with less inconvenience. And you divide that by 3 players, as I've said, is pretty significant [ number ].

Yes. Agreed. Remind us again in terms of the Pfizer deal and your retained economics on somatrogon.

Jon, you want to take that?

Sure. Thanks, Steve. So with Pfizer, they paid us $295 million upfront. They'll also pay us another $275 million in regulatory approval milestones. The way the milestones are paid is as each indication in each region gets approved in the main territory, with the main territories being the United States, Japan, and then several of the major European markets will receive milestone payments. Each one of those vary between $20 million and $90 million. And the largest markets there are the pediatric growth hormone deficiency market as we're currently seeking. So pretty substantial milestones to come. In addition, we'll be paid a gross profit share of the hGH franchise. The hGH franchise consists of both the long-acting form that's currently being developed; but also as regulatory approval for that product is achieved in each region, we also participate in the region -- or in the regions, Genotropin revenues. So today, Genotropin is a $500 million product for Pfizer. When we launch each in the pediatric growth hormone indication in each market, we'll also participate in Genotropin revenue there through the hGH franchise concept. It's a tiered scheme where, as revenue from the long-acting form becomes the majority of the market, the tiers shift up dramatically as well as the franchise. As the whole grows, the tiers start -- continue to increase.

Yes. Cool. I think that's a good feature of the deal to have the profit share with Genotropin. So Ascendis is developing TransCon hGH, you mentioned this earlier. How are the molecules different? And maybe you can kind of give us a sense for where they are in timing?

Sure. So Ascendis is actually -- is a slow -- a PEGylated recombinant growth hormone. And it's a slow release PEGylation that enables it to stay during the active or the period peak. It was masked by a PEG that releases the recombinant growth hormone. Ours is actually a new [ monitor ]. So we take, as I mentioned, recombinant growth hormone and we attach 3 complements to the C-terminal peptide. The same natural, as I mentioned, as the human chorionic gonadotropin. So that amino acid sequence is what provides us the long-acting action of growth hormone, again, similar to what is done naturally with human chorionic gonadotropin. So that's -- they're different. They're modifying the actual growth hormone, but as far as the PEGylation, ours is actually a compound, a drug that is modified by attaching [ the main PEG ] at the development stage with the 3 different peptides.

Now investors made a big deal about the height velocity superiority of TransCon hGH versus Genotropin in their study. But several children experienced IGF-1 excursions above the normal level in their trial. Why is this a problem? And remind us what you guys presented on your IGF-1 levels with somatrogon?

So I mean the IGF-1 kind of -- [ mentioned it for the amount of ] growth hormone and all our drugs are not cosmetic drugs to treat a disease. So you're trying to replace what you would have naturally. That was the goal of our study -- everyone's studies, ours, Novo's, is approval. If you find a duplicate, what's been out for 25 years -- what's been out for 25 years is duplicated, the complicating factor and the reason here it took so long for anyone to make this long acting is the natural peak of a growth hormone is if you were taking the [indiscernible] shot [ or do it ] yourself, it tends to peak at night and then it goes back down. So that's normal cycle of those up and down through the day. So the issue that we all face is how I will give you enough growth hormone so that, in fact, you would peak at the day, but then it slowly comes down. So at the end of the week, you now have almost 0 or 0. And then you have an injection, do it again. But there's a band of safety that everyone follows is you're not allowed to get too low. You're not getting off drug, so it won't be affected at all. It will be the same. And too high, I'm overdosing the patient. So if I'm overdosing a patient, we're going to grow -- I can always make you grow more [ with these ] growth hormones. But that's not the goal of this study. The goal is growth hormone replacement. Put back what you would have naturally. Duplicate them in the market. That's how we designed our drug. If I want you to grow more, I'll give you more. That's going to be -- the growth hormone amount is a little higher. And that becomes a [ lot of risk ]. We don't want to [ overdose ] our patients because a lot of diseases are associated with -- goes with growth hormone. And second of all, there are other indications within the growth hormone disease anyway that requires higher dosage. We're already [ of that rig ], in that band I described that was helping the drug. You don't have a lot of margin to actually continue to increase dosage above that level. We're pretty happy with where ours is and you can't be having head-to-head comparator based on all the different stuff. So also depends on patient population. So just take a look at their daily Genotropin comparator as opposed to you. Children in their study on Genotropin were higher than the children in our study of Genotropin. That doesn't necessarily say same drug, same dosage. But it makes sense because different populations grow at different rates. So just naturally with North Americans and Europeans tend to grow taller than Asians and South Americans. So it depends how widely you're starting it, what it's going to be. So we don't think -- one, we're not concerned -- Pfizer is not concerned with their position of being superior, really don't really want to be superior. Plus I think it's too much [ blood ]. And really, we have a nice band of safety that will allow the physicians to [ do ] what they always do [ for their practice ], adjust it as the child grows [indiscernible]. So we're pretty happy that ours came out almost exactly the way we predicted it would.

Great. Now Ascendis has a June 25, 2021, PDUFA date, and the EMA has accepted their MAA filing in Europe. What kind of head start will this be? And how important could that ultimately be for market share?

So they are going to be approved in those markets first. Whether they launch is a different issue. As I mentioned, Novo has been approved in the U.S., but the drug it hasn't launched yet. It's not easy launching a drug. It's not like in the old days. I get approval. I'm off to the races. That's the logic that was behind it. Not the least of which was getting on formularies. And we feel really good about having ours with Pfizer, who has been a dealer participant in these markets so wide for 25 years. So we know what it's like to launch a drug for a pharmaceutical company. [ The issue ] is going to be the launch of your first drug, and there's a lot of work that goes behind it. So the [indiscernible], we don't think it's going to [indiscernible] already for sure. But I mean I don't think we're talking a matter of months here. As I mentioned, our submission will be this quarter. Our drug will be approved, so 12 months or 10 months from the FDA acceptance, that period, if all things go well. So we're not talking -- we're talking a matter of months, not years here. Everyone will know our drug is coming out. And Pfizer talked about the benefits of our product. And we've got Pfizer as our commercial partner. So we are going to be first in those markets. In fact, we're [indiscernible] ourselves [indiscernible] longer period of time [indiscernible]. And we have a pretty good product [ heading in the fall ].

Yes. And ultimately, it could be that Pfizer, because of their experience and because of their existing patient or physician relationships, maybe makes up some of that ground or is even in a stronger marketing position. So I know ultimately that the goal is going to be to apply this technology to some other drugs. You also have a drug called RAYALDEE that's in development. But in the interest of time, you guys ended the third quarter with cash around $36 million. And I believe you also have a credit line from your Chairman, Phil Frost, plus the somatrogon milestones coming. How long will this fund the company? And Adam, maybe you can remind us about [ the amount of debt ] on the balance sheet.

Sure. So Ted, we -- as you mentioned, we've got $36 million in cash on the balance sheet. During the third quarter alone, we repaid $63 million of line of credit that we have with JPMorgan. That line of credit -- so that was repaying it in full. In addition, we've got $100 million line of credit with Phil, so a little over $200 million in cash or capital available to us to use to fund the company. We generated, in the first 9 months of 2020, a little bit of cash, about $5 million in cash from operations with a significant amount coming during the third quarter. We guided that we're going to generate, again, a significant amount of cash flow during the fourth quarter as well. So we should start to see an accumulation of cash assuming we don't deploy that in a different way. We don't have any large maturities coming of any of our convertible debt. We've got 1 issuance of $200 million that's due in '23 -- I'm sorry, in '24. We've got a smaller amount, $55 million, that's due in 2023, all -- both of which -- or all of which have conversion prices right in the $5 range. So not too deeply out of money.

Too far from where you are, yes. Well, that's great, guys. I really appreciate the time today. OPKO is available for one-on-one meetings during the Piper Sandler Health Care Conference taking place from December 1 through the 3. Please contact your Piper Sandler representative to schedule. Thanks, everybody.