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

Good afternoon and thank you all for joining us today. My name is Tim Donnally. I'm a member of the JPM Healthcare Investment Banking team. It is my pleasure to introduce our speakers for today's session from the management team of OPKO Health, including Dr. Phil Frost; and Jon Cohen; Steve [Audio Gap]. With that, I will pass it off to Phil Frost. Phil?

So we are really pleased to present this year at the JPM conference. The OPKO story has evolved over the last year to the point where I think you're going to find it especially interesting. And we're going to start off with our speakers here in Miami, and we will start with Steve and then go on to Adam, and then move on to Jon to tell the BioReference story. Steve Rubin?

Thank you. Hello, everyone. So as Phil mentioned, we'll be talking a little bit about OPKO and how we progressed. So if I can get the first slides up, please. Okay and the next slide. So just as an intro, of course, much of this presentation will include forward-looking statements. A lot of those are outlined in this slide and in our SEC filings, and we just encourage investors to review those carefully. Next slide. So we have 2 diverse platforms, a pharmaceutical platform and a diverse diagnostic platform, both of which are very much in growing health care markets. Jon is going to speak, particularly on the diagnostics side. I'm going to cover the pharmaceutical side. But a quick summary, as you see on the slide, on the diagnostics side, we have a third large full-service reference lab in BioReference Labs based out of New Jersey and with presence around the country. Within that family, we have an innovative diagnostics called 4Kscore, which is a blood test for prostate cancer. And GeneDx, which is best-in-breed genetic test offering in genomic sequencing. And again, Jon will speak in more detail. On the pharmaceutical side, we have one commercial product, and that's RAYALDEE. It's approved for secondary hyperparathyroidism in stage 3 and 4 chronic kidney disease. That accounts for -- supports its 80-person commercial team through its own cash flow generation and sales. Growth has slowed somewhat in that product because of COVID, but we expect growth to continue as normalcy slowly begins to return. Within the pipeline itself, we're continuing to progress the development of our pipeline, starting with somatrogon, which is for the treatment of children with growth hormone deficiency. We're also working on label expansion programs for RAYALDEE. And we have preclinical programs, which I'll talk about more a little bit later, utilizing our platform technologies to extend the biological half-life of therapeutic proteins. Next slide, please. So a significant highlight for us of late was Pfizer's recent announcement that the FDA has accepted for review our BLA or application for somatrogon, a once-weekly treatment for children with growth hormone deficiency. We have a Prescription Drug User Fee Act or PDUFA date, which is October 2021, October of this year. How we got here? So we did a very broad global clinical trial, and we achieved our primary endpoint, which, as you see here, it was a height velocity after 12 months as compared to the daily Genotropin. So our height velocity at 12 months is higher in the somatrogon group than it was in the Genotropin group. And secondary endpoints were also fully achieved. Those included change in height standard deviation at both 6 and 12 months, change in height velocity at 6 months. And our drug was generally well tolerated and comparable to the once-daily drug Genotropin. We also did a Japanese registration statement that was also successful in improving that our height velocity at 12 months was higher in the somatrogon group than it was in the Genotropin group. Again, this study met all of its primary and secondary endpoints. We did an additional study really for Europe, and that was to show a successful crossover study. So there, we treated our once-weekly drug as compared to treatment with the daily drug to get a mean overall life interference score. And the key secondary endpoints here showed that an overall benefit in the treatment experience with the once weekly as compared to the once daily. And again, that was important for the European submission to show really that it's better tolerated and the compliance is very high. Next slide. I'll speak briefly about the technology behind somatrogon. So somatrogon consists of the native peptide sequence of the native growth hormone. We take the actual native growth hormone. And we added to that 3 copies of a 28 amino acid chain, a human chorionic gonadotropin hormone. So why is that important? We felt that it was important because that peptide exists in your body now. So the idea being if we can modify the native growth hormone with a native peptide chain that your body would recognize, then perhaps, it would reduce the risk of immunogenic response to drug. It did as designed, which was to reduce the injection frequency from daily to once a week in children with growth hormone deficiency. Next slide, please. So what's left? So as I mentioned, the BLA was already submitted, and it's already accepted for review with a PDUFA date, which should be the approval date in October this year. We have -- we plan on submitting in Europe this half and first half of this year, and we plan to submit in Japan also in the first half of this year. So Pfizer is responsible for the worldwide commercialization of the drug. And under our agreement with Pfizer, I'll remind you, that we are eligible to receive up to $275 million upon the achievement of certain regulatory milestones. And in addition, upon launch in certain major markets, we are entitled for regional tiered gross profit share for both somatrogon as well as Pfizer's Genotropin. Next slide, please. On the commercial side, as I mentioned, we have a drug called RAYALDEE. Next slide. So RAYALDEE was the first and only extended-release prohormone of the active form of Vitamin D. It's a once daily oral formulation of the prohormone 25D3. It was designed to address a significant unmet need in the stage 3 and 4 chronic kidney disease area. It's the only product that was approved by the FDA to treat secondary hyperparathyroidism in patients with stage 3 and 4 CKD and vitamin D insufficiency. It reduces the plasma levels of parathyroid hormone and increases serum 25D with a safety profile similar to placebo, minimal adverse effects, no increases in serum calcium or phosphorus, which are the key drivers of vascular calcification, which are the hallmarks of chronic kidney disease. Total prescriptions of RAYALDEE increased 13% in Q3 of this past year, 2020, compared to Q3 of 2019, and was consistent with the second quarter of 2020 despite COVID-19 restrictions on marketing. There really are no other good options for health care providers in stage 3 and 4. What's out there now is either to use the active form of vitamin D or the hormones, which are typically used in patients with dialysis. And it can actually be dangerous for some patients pre-dialysis. Or you try to use supplements, which have really no effect on a patient with chronic kidney disease. And chronic kidney disease is a silent killer and significant disease. This is the ninth leading cause of death, it's ahead of both breast and prostate cancer in people. And we expect the prevalence of chronic kidney disease to continue to rise because of obesity, diabetes and hypertension. Next slide. We are also conducting a study with our partners, Vifor and Japan Tobacco, in patients with stage 5 chronic kidney disease or dialysis. So we conducted a Phase II open-label trial, which would evaluate the safety and effectiveness as well as pharmacokinetics and pharmacodynamics of higher-strength RAYALDEE. So that commences September 2018. We enrolled 44 patients for 26 weeks. We released positive interim data in March of this past year, and we'll plan on releasing the top line data sometime later this quarter. Next slide. In October 2020, we commenced a placebo-controlled Phase II clinical trial with RAYALDEE to treat patients with mild-to-moderate COVID-19 or the rescue trial. The study is expected to enroll 160 subjects, some with stage 3 or 4 chronic kidney disease, who have elevated risk for developing more superior illness. Although opening COVID-19 trial sites has taken longer than anticipated due to reluctance to provide ongoing care for infected patients in an outpatient setting, the pace is now accelerating. Should the data from this trial be positive, we intend to seek an emergency use for authorization for RAYALDEE for this indication. Next slide. Turning to our pipeline. We have several programs in our product pipeline that are advancing in preclinical and clinical development. The first few are really our label extensions. So we have the growth hormone -- next slide, please, I'm sorry. So the first 2 are really growth hormone, which we discussed is currently submitted for approval in children, and we expect to submit for approval in adults after receiving approval for children later this year. We are also committed with Pfizer to develop one other pediatric growth hormone disorder. There are a variety of those available, small gestational age, for example, idiopathic growth hormone deficiency and the like. And we will select 1 of those that we will share the cost of the development with Pfizer and then one. So the growth hormone market is fairly significant. It's about $4 billion. And I've discussed briefly the economics that we share with Pfizer. So turning to our long-acting platform technologies, which includes the growth hormone, of course, we have a Factor VII, which has completed a Phase I study for the treatment of hemophilia patients. We have both an IV version as well as a subcu version. That's unique because the only other clotting factor for Factor VII is -- are all IVs or infusion only. So this could be used prophylactically as well with our subcu as well as a longer acting, so less administration and clotting. Moving below that, we have a once week GLP-2 molecule for the treatment of short bowel syndrome as we expect to start clinical trials later this year. Growing indication for the GLP-2 therapy in patients who have had bowel restrictions for cancer or other conditions. We believe that both of these long-acting technologies will offer clinical benefits over current products in the market. So with that, I'd like to turn this over to Jon to talk about our laboratory and diagnostic businesses. Thank you.

Thanks, Steve. Let's go to the next slide, and go to the next one. So in terms of 2020 and then 2021 overview of the BioReference Laboratories, as all of you can imagine, it has been nothing less than a remarkable year for BioReference Laboratories. And if you look just at the numbers, the number of patients served have gone from 11 million to 19 million. The number of requisitions that we do daily have gone from 40,000 to 115,000. We've gone from 4,000 staff to 8,000 -- 8,100 staff and the clinical staff has basically tripled from 120 to 300, including some significant recruitments at the very senior level at the executive level. As this year progressed, we made significant investments to rebuild, reconfigure the main laboratory in Elmwood Park, but in addition, we made significant investments in our lab in Melbourne, Florida; Houston, Texas; [Technical Difficulty] California and the GeneDx laboratory in Maryland. In addition, on the operational side, we now have 100% tracking of all of our specimens, and we actually have GPS real-time tracking for long-haul specimens for particular carriers. Next slide, please. In the past, you've heard me talk about the 3 pillars on the strategic plan. It was the core business, digital health and the strategic ventures. This year, because of the COVID-19 outbreak, we really had to add a fourth pillar to the organization as the COVID-19 impact certainly impacted every single part of the organization. I also want to add that in terms of our access, so we are part of the UnitedHealthcare Preferred Lab Network with access to 45 million lives. We now have access to Blue Cross Blue Shield of Texas with another 5.9 million lives and access to Blue Cross Blue Shield of Alabama with another 2 million lives. Next slide. So of course, everybody is interested in what's happened with COVID. I'll talk about our COVID response, what's happened, what we've done so far and where we actually -- the business is heading. So most importantly is we have, I would say, emerge as the company doing the largest numbers of large-scale screening programs across the country. And these large-scale screening programs include both PCR COVID-19 testing and point-of-care testing. And if you subsegment out where the COVID-19 touch points are, it really is sports, which I'll talk about in a minute; travel industry, it's leisure, particularly around airlines and cruises; education, which is near -- which is public schools, it's in universities where we just recently reported, we have done the largest number of public school students in the country. We reported out 220,000 students in the New York City school system which, as I said, the largest in the country. We also have a large number of large employers and have customized solutions on COVID-19 testing for large employers, one of which I'll refer to is the MTA to get people back on the buses and subways in New York City. We also have continued our substantial relationships with governments, particularly in New York, New Jersey, Michigan, Florida and we are now serving all of the other 46 states in the country. And then, of course, this is our relationships with what we refer to as retail, which is really for most people to have general public to have access and that's through our CVS and Rite Aid relationships. We currently have almost 700 CVS and Rite Aid storefronts where people get tested. We are actually adding 1,000 more sites within the next 4 to 6 weeks to expand that offering. Again, the common thread before BioReference has been is that we offer customized solutions to very different types of environments and different -- very different type of clients and especially on the large-scale screening issues. Next slide. Could you please run the video? [Presentation]

So let me take a couple of minutes to tell you where we are with our sports franchise relative to COVID-19 testing. We have now reported out over 1 million tests for the National Football League. We tested all 32 teams in 30 cities around the country. We do on-site collections for PCR. We also do point-of-care, rapid testing as needed. Many of you may have seen recently, we did close to 7,000 fans for the Buffalo Bills playoff game last week, and we are now in the process today started doing another 7,000 fans for the playoff game that's going to occur this weekend on Saturday night. In addition to the NFL, we are now the provider to the National Basketball Association. We will be testing the NBA, all 30 teams in 28 cities around the country. We've also done fan testing for the couple of the franchises where we actually do point-of-care rapid testing for the fans before they go to the game. And we have also recently signed our agreement with the National Hockey League. The first game starts tonight, where we'll be testing the National Hockey League, 24 of the U.S.-based teams in 22 cities around the country. More recently, as you know, we -- or you may not know, we did the U.S. Open for the U.S. Golf Association for both the women's and men's amateur. We also did this past weekend in Miami the National Football College Championship game of Ohio [Technical Difficulty] Alabama, and of course, we were also the exclusive provider in Orlando during the bubble for the NBA and the Major League Soccer. So we have a -- we've had a huge impact on the sports franchises around the country, and we will continue to do that testing throughout the rest of the year. Next slide. Relative to where we've done -- where we've been with our COVID-19 offerings, we've now done over 10 million PCR tests in our 5 laboratories around the country. We are testing for COVID in all of our 5 laboratories, which is in California, Texas, Maryland, Florida and New Jersey. As I said earlier, we've made significant investments in all of those labs to bring up the COVID testing. In addition, we've also collected ourselves 1.3 million samples. What I mean by that is we've actually had a total turnkey solution where we do the swabbing, the registration, swabbing collection and analysis of the COVID-19 in the laboratory, in all 5 laboratories. We've also mobilized and put in place over 320 pop-up sites for COVID testers -- testing around the country. We've done pretty much -- we have capacity now to do approximately [Technical Difficulty] PCR tests a day. As you'll see, we're running approximately 60,000-plus every single day. The capacity always outruns what you're actually performing because of issues relative to the platforms and supply chain. In the care side, we've now actually done over 70,000 point-of-care rapid tests. We've validated upwards of 6 platforms now with preference on certain ones of them, but we're actively, actively engaged in point-of-care testing for rapid testing. Next slide. In terms of the future of COVID testing for 2021, we will continue to lead the industry in customized solutions and large-scale screening programs. Many factors will continue to drive COVID-19 testing at least through 2021 in our opinion. Retail access remains imperative for the general impact -- for the general public. What I mean by that is restaurants, movies, theater, opera, large other scale arena events, all need to figure out with their [Technical Difficulty] how they're going to open up those venues. Physicians will assess their patients as well hospitals and large medical groups. Employers are now currently working through how they're going to bring their employees back, some of them actually public facing and some that are not public facing. Transportation, including airlines and the cruise industry and other hospitality relative to hotels will continue to need significant testing. Public school, private schools, universities and colleges will continue to need testing. And testing strategies that involve actually opening up the economy will continue to be a significant imperative throughout all of 2021. I say to people all the time, it's not just that the country needs more testing, it's that the country needs smarter testing for multiple different use cases in multiple different environments. Next slide. So let me now move to the core business. As I stated before, the core business is really divided up into the clinical care business, the genetics business, women's health, oncology and urology. So briefly on the clinical side overall, as a result of multiple strategic issues and COVID, we've added over 11,000 new customers last year. I'll talk about GeneDx in a second. Women's health is approximately back to 85% to 90% of where it was in 2019, grow, particularly around the issues related to COVID and testing women who are both pregnant and not pregnant for COVID disease. On the oncology side, we released recently our 523 gene panel called OnkoSight, which is cancer-specific and actionable relative to diagnosis to prognosis and treatment options for solid tumor. We also have a burgeoning business in the hematological malignancies. We offered to have multiple additions to that platform, including expanding PD-L1, Tumor Gene Fusion Assay, [Technical Difficulty] cascade relative to the leukemias. And finally, on the urology side, we've doubled our sales force. The 4Kscore is back to about, again, 85% to 90% of where it is -- where it was in 2019, and we continue to see the return of that business as the urologists have returned to their office. Next slide. So can -- before we play the video, one of our most important initiatives as we roll into 2021 was the whole area of digital health, which you remember is one of our major pillars for the future of the business. It is our belief that the idea of having to make an appointment to go to the doctor, make another appointment to get your bloods drawn, go to a waiting room that's crowded, waiting to get your bloods drawn, make another appointment or call your physician to get your results is antithetical to everybody on how they live their lives these days. It's a world in which we consume on-demand food, on-demand movies, on-demand music and just get just about everything we want that's ordered and delivered to our home. Up to now a full digital solution for on-demand lab testing does not exist until now. Can you play the video, please? [Presentation]

Next slide, please. So we officially launched the Scarlet today. We've been in market pilots throughout the last year. Scarlet and through BioReference is the only national laboratory to offer an in-home fully integrated digital solution of mobile phlebotomy and laboratory services. It's efficient, convenient and makes it safe for patients at home or at their office, which has been, of course, by digital platforms that consumers use daily and is very, very easy to use and quite ubiquitous. It demonstrates what we consider the new delivery of health care, meeting the demand that currently exists by both patients and physicians. It addresses what I call the new normal of what health care really looks like, particularly relative to telemedicine. 65% of the physicians in the country now use telemedicine, 1 out of 5 docs use telemedicine platform. We imagined it so that when you have a telemedicine console, the physician talks to you. He'll have -- they'll have the vital signs done in your home, you'll need a prescription and that prescription will be delivered to your home. And now for the first time, you'll have your blood drawn at home to have a fully integrated 1 experience that is digitally driven. Next slide. The other pillar, that I'll talk about, the third is the strategic ventures, which we've launched much before. I will just update you on where we are. We've had enormous success, with the 2 recent examples. We have a mid-Atlantic integrated health care system with over 2,600 physicians, where we've decided to built out their lab, we manage the lab every day, and we provide courier services as part of that venture and partnership. In Texas, we are partnered with a very large women's health group with 60 locations and approximately 150 providers. We are the primary reference lab on the molecular side for the laboratory. Again, we design and built the laboratory space for them. We provide phlebotomy in their care centers, and we're managing the day-to-day laboratory relationship for that Texas-based women's health network. In addition, we recently have agreed, and we're providing [ gaps and cares ] for a very large 1000-member physician group here in the Northeast. We also have established partnership with a larger urgent care provider in the state of Florida, and we've added upwards of 21 now new hospital clients for the reference business that we had never had before. So all in all, the strategic venture part of the pillar is off and running and is doing quite well. Next slide. So let me just -- let me last mention the last of the pillars. And that's, of course, GeneDx and our place in the world of genetics. We continue to be in GeneDx, the global [Technical Difficulty] rare disease genetic disorders diagnosis. We are the largest provider of exome sequencing performing nearly 5,000 exomes a month. We are the leader in pediatric rare disease in most children's hospitals across the country, and we have 1 of the largest test menus in the world as a result of the 2 decades of this experience. Recently, we've launched a new joint venture. The new joint venture is called Detect Genomics. It is in partnership with Pediatrics Medical Group, which has over 2,200 affiliated neonatologists. Rapid exome and genome testing to the NICU across the country is the offering of Detect Genomics. It leverages our unique expertise of pediatric caring for the NICU babies, along with the GeneDx expertise and rapid diagnosis resulting in patient provider and payer benefits. And finally, in terms of the broad utility and leveraging our expertise, we continue to focus on genetics with other organizations to broaden our commercial organization. We are leading with our exome experience to build leadership positions in genomes, and we're making diagnostic genetics available to all patients and providers. And more -- and as importantly, this year, we launched the rapid genome test, where we now could provide results within 7 days of verbal result, which is 7 days, targeting particularly the NICU babies. We've also, in terms of the business, had essentially 100% rebound by August of this year based on the data from 2019. And we've had historic volumes within the last couple of months relative to the volume at GeneDx. And finally, I want to mention, GeneDx is 1 of our 5 laboratories doing COVID-19 testing. The laboratory at GeneDx that has done over 2 million COVID-19 testings. We retooled the laboratory as a result of the COVID pandemic. And those folks down at GeneDx did a remarkable job of stepping up and now having a huge high throughput, 24/7 operation to deliver COVID-19 testing. So with that, I'll turn it over to Adam from finances.

Thanks. Next slide, please. So just to briefly touch on our cash position. As of September 30, we ended that quarter with $36.3 million in cash on the balance sheet. But over $200 million of capital available, considering our unsecured credit facility as well as an ABL with JPMorgan. I'll mention that our Q3 revenue were up over $428 million, essentially a doubling of our 2019 revenues. And as we had -- as Jon mentioned, we did a significant number of tests, PCR test for COVID this quarter, which exceeded our previously issued guidance, and we're pleased to say that we will exceed our previous guidance and confirming our revenue guidance. We were profitable in the third quarter and also guided for profitability in the fourth quarter of this year. And considering both of those expect a full year profitability for the company. And with that, I'd like to turn it back to Phil, if you have any closing remarks.

No, we just want to thank you all for participating. And if you have any questions, we will be happy to address them with a phone call to any of the people who participated in the presentation. Thank you.

Thank you very much.