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

Hi, everyone. Good afternoon. Thank you all for joining us today for our conversation with OPKO Health. My name is Adi Jayanthi from the JPMorgan's Healthcare Investment Banking team. I'm really excited today to introduce the management team at OPKO Health. So with us today, we have Dr. Phil Frost, CEO and Chairman of OPKO; Steve Rubin, Executive Vice President, Administration; Adam Logal, Senior Vice President and CFO; Jon Cohen, Senior Vice President of OPKO and Executive Chairman of BioReference Laboratories; and Katherine Stueland, President and CEO of GeneDx. So welcome to all of you and thank you very much for joining us here at the conference. Maybe before we get going, obviously, you guys are a diversified business and would love to just get an overview of the company and any particular areas that you'd like to highlight.

Sure. So I'll give you a little brief overview for the BioReference piece of it. So I think from a strategic point of view, that's ignoring COVID for a second, that the BioReference has set up 3 really important strategic initiatives. That's, one is to continue to invest and grow our specialty-based businesses, which includes urology, women's health, oncology, in addition to the base business, as I said. The second big initiative is strategic ventures, which is our large partnerships, we announced about 1.5 years ago a partnership with Westchester, which is the largest health system north of New York, with a large lab management business. We have several more of those in the pipeline. And the third big strategic initiative is the launch of Scarlet Health, which is our digital home draw solution, which has gained enormous traction within the last year. So the fourth piece of this, of course, is COVID, which we will, I'm sure, talk about at some point during this. And what its contribution has been to the company, our enormously successful track record in COVID and what we view with COVID going forward into 2022. So that's a very high level of the growth initiatives that we've teed up for the next year.

Good. So I want to say welcome to everyone, and we have a great team. And we want to emphasize a couple of the areas of the company that we haven't given a lot of exposure to previously. And along those lines, we want to have Katherine talk about GeneDx and let you know about the important events transpiring there. I'm going to say a little bit about a part of the company that almost never gets any attention, that's our Latin American business. The company is run fairly independently by Hans Berner, who is doing a hell of a job. We acquired a couple of small companies and primarily a company in Mexico that was in the ophthalmologic generic business. And now that unit this past year did over -- just close to $100 million in revenues and almost $20 million in EBITDA. But the beautiful thing about it is that, that represented significant growth from the previous year. And their program could continue a growth pattern of roughly 20%. So our hopes are because the unit is now in Chile, in Mexico and Spain, small unit in Uruguay, to expand geographically, both in Europe and in Latin America to create a good commercial business there. And the focus on ophthalmology still exists, and we have a couple of R&D projects going on there, led by one of the leading ophthalmologists at the University of Monterrey Medical School. And there is some interesting potential to come up with products of major importance there. I just wanted to give you a flavor for that. And with that, why don't we go to Katherine.

Thanks so much, Phil. I appreciate it. And nice to be introduced today. Just by way of background, my name is Katherine Stueland, joined GeneDx middle of 2021. Before that, spent the past few decades entirely in healthcare on the pharma side, on the biotech side. But over the better part of the last decade, I was at Invitae, joined the company back in 2013 when there were just under 100 people. And since then, was an integral part of that team building, scaling and selling genetic information, mainly by way of panels. And so as the entire industry has continued to evolve and as panels have grown, there was one area where GeneDx continued to show up as the leader in the space, and that was by way of their clinical exome. And so it really was an incredible opportunity to be given the ability to come assemble a growth strategy, assemble a team to really put forth a new commercial muscle behind GeneDx's industry-leading exome. For those who may not be very familiar with GeneDx, it was spun out of the NIH about 20 years ago acquired by BioReference and OPKO later on. But really has emerged as a pioneer, quietly just building, as I said, the industry's leading exome as well as the first commercially available genome that is poised to scale. So we have within our capability here in Gaithersburg, the ability to really transform the use of genetics in the most comprehensive way by interrogating an exome and genome and being able to do that at scale. And the importance of being able to really look at a more comprehensive view of a genome is a more definitive diagnosis in 20% of the cases, and a reduction in the variance of unknown significance by 27%, which is hugely important. So over the past 9 years, we've been amassing an incredibly rich data set of genotypic information paired with phenotypic information that really enables us with every exome that comes through our laboratory. It's informing our algorithm, which is providing a more definitive diagnosis for the next patient out. So it's been an incredible muscle that this team has built under OPKO and BRL over the past several years. We have about 100 MDs and PhDs. In fact, we train the fellows at the NIH on genomics, and so we are able to recruit the top gun of talent when it comes to genetics. And since I've joined, we've been able to assemble an incredibly strong commercial team that really has been able to put us on a growth trajectory in the future, that we think is really commensurate with a very large market opportunity. We'll be focusing in the NICU and providing diagnoses as quickly as possible to babies in the NICU, being able to provide more information and get them out of there as soon as possible, which translates to cost savings for the hospital $33,000 per patient. We're able to save the hospitals with a really good reimbursement path by way of the DRG. We're also going to be focusing on the pediatric segment, particularly for children who are displaying symptoms of intellectual or developmental disorders. Really an important area and in fact, the medical body that governs Genetics, the ACMG, they came out with guidelines last summer that said that any child suspected of such a disorder should be tested using an exome or a genome, which really positions us very well to be able to provide important information. And that guidance also helps us work with payers to ensure that we're able to be reimbursed for those tests as well. So we have enjoyed throughout the course of 20 years, the strength of the clinical science here at GeneDx. And now with a really strong commercial team, we're looking forward to entering a new phase of growth for GeneDx in the future. So thank you, and I will hand it back, I think, probably to Steve.

Before we move on to the Q&A part, I mean there's a lot more than most of you heard about OPKO. We obviously have a significant pharmaceutical side as well with the reality in commercial sales in chronic kidney disease and obviously, our growth hormone product, which has been approved in some territories, but we're anxiously waiting Europe, Japan and the United States with PDUFA date later this year. So Adi, I'll turn it over to you.

Yes. No, thank you, everyone, for the great introduction and really exciting stuff on the GeneDx side in particular. But Steve, as you said, maybe we'll start on the labs on the diagnostics side and the BRL side, and then we'll go to pharma from there. I guess, obviously, with the Omicron variant, there's been a nationwide significant testing on COVID-19. And we just wanted to hear about what kind of trends you've seen on the BRL side, given that any customer verticals in particular where you're seeing the most demand? And any news that you have on pricing as well would be helpful.

Sure. So as you can imagine, we had the pandemic, then it decrease, then we had Delta and then it decreased and then Omicron hit 4 weeks ago, at least for Northeast and now more parts of the country. The -- so we've had a very, very robust response to what's going on. We -- we've stepped back up and rebuilt our restaff for a significant amount of volume. We're not where we were at the peak of the pandemic. But each week, we move a little closer to that. So the volumes have really been incredibly high in the last 4 weeks. We also, just as a reminder, do point-of-care rapid testing. We have hundreds of sites out there that are doing a point-of-care. And then most importantly, we're not as important, is we also do, if you remember these large screening programs. So there's diagnostic testing where majority -- a lot of our volume comes in through our exclusive relationship with Rite Aid, where we test the general public when they're usually either sick or symptomatic or they want to get a test done to travel or visit or have been exposed. That's very different than our screening program. So as you know, we're one of the largest provider of screening programs for the -- for the majority of the sports leagues having tested over 200 teams a day. We're also one of the largest providers, if not the largest provider for the cruise industry throughout the country. And then we have a huge presence in public school testing in addition to employers. So the difference for us is we have these longer-term contracts for screening testing for COVID in addition to the diagnostic piece on the general public. So if you look at both our point-of-care rapid testing business and our PCR business, it's been very, very busy last 4 or 5 weeks.

Got it. That's great. And then maybe beyond that, just kind of what's been the trend in your core and genomics clinical testing business at BRL outside of COVID-19 testing? And what are your thoughts on kind of trends going into 2022 as well?

Sure. So I'll talk [indiscernible] the BioReference side. We've had really strong growth in our verticals where we've invested, which includes women's health, oncology, urology and then like I mentioned, on the strategic venture side. So our core business continues to grow. We made some substantial investments this year. One, you may have seen is the acquisition of the Roche Ariosa business for NIPT. That significantly increased our volumes on the noninvasive prenatal testing side. And then we stood up some interesting oncology offerings, which included this TS 500 to help us on the cancer genomics side, in addition to some more investments on the hematological side for the leukemias and lymphomas. So both of those verticals and the 4K test for urology continue to grow. So we're very bullish on 2022 relative to the base business. I'll let then have Katherine comment on the genetics side.

Certainly. So A big focus for us, as I mentioned, has been just to emphasize the competitive advantage that we have with our exome in the NICU and as well as in the pediatric setting. But we also have a fair amount of volume coming through that are panel-based. So what we've been really doing in the fourth quarter is putting a greater emphasis on selling exome, in addition to what we would call kind of higher value of panels where we have a particular strategic advantage there. And so I think as we look into 2022, we have the foundation for realizing this strategy shift of being able to really take the focus of where we have a particular advantage in the market with exome and continue to drive that forward, while also having a healthy balance of panel volume coming through as well in terms of being able to support the base business. So what we're expecting moving forward is continued combination of volume with a good mix and increasing on the exome side of things as well.

Good. Got it. Great. And Jon, you mentioned the 4K test as well. And in December, I saw that the company announced the 4K score received FDA approval for its PMA submission. Can you discuss kind of how that might affect sales for the 4Kscore? And also maybe what the impact of COVID has been on 4Kscore testing volumes as well in particular?

Jon, do you want to take that?

Jon, I think you're on mute.

Yes, sorry. So I think one of the biggest issues on the FDA approval is to give us a much stronger story to go back to the payers. We are -- we have a Medicare approval. So we believe that the FDA approval will help us when we go back to the payers to get improved commercial payers across the country. So that's the biggest -- one of the biggest issues on the FDA approval. In terms of the volumes, the urology practices are coming back. They were, like a lot of subspecialty practices, a little bit slower during the pandemic. But pretty much most of them are back to where they were in terms of seeing patients again. We've seen just anecdotally very little fall off in the Omicron. I think that people have, honestly, quite honestly, most physicians are just powering through it right now. I don't think they have any appetite to close their offices again. So we have our sales forces -- a sales force of about 23 people on the 4K side, which we continue to leverage. So we see, again, a significant upside on that.

Got it. Okay. No, that's great. And maybe we move on to a few questions on the pharma side. Last quarter, management stated that RAYALDEE's performance has bottomed and is expected to grow from those levels. And so are you guys starting to see that sales growth in RAYALDEE? Or is it kind of being hampered in any way by COVID-19? And then maybe an extension of that is what strategies are in place to really bolster sales in light of the environment that we're in today?

Sure. So I think as we mentioned before, we were showing nice growth before COVID hit and RAYALDEE, kind of took a lot of the growth out of the market, a lot of it is particular the CKD patients, particularly vulnerable patients for COVID, a matter of fact, beyond age, I think it's just the highest -- second highest comorbidity for severe [indiscernible] from COVID. So it's early, but the growth so far, the part of this year is up single digits, but high single digits from where it was last month. We're hoping that trend continues. For strategies, obviously, we're focusing on and hoping, as Jon mentioned, that practices won't close. A large part remember [ where ] the nephrologist, and they certainly aren't seeing a lot of patients in the office during COVID. Obviously, those going to dialysis need to go to dialysis. But those who are not on dialysis, which is where RAYALDEE is targeted for non-dialysis patients, are not seeing the doctors often. But they still need drug. They're still as sick and still needs to be treated. And so we're focusing efforts on those practices that have not closed, that have not stopped seeing patients and more active. We're also focusing on those areas that have higher insurance. RAYALDEE can be expensive for those patients who don't have -- aren't covered by insurance, and we're focusing on that as well. We're also increasing the education to show the difference. I mean there's always been a pushback on what is RAYALDEE. It's a prohormone of vitamin D, why can't I just take over-the-counter vitamin D? Or why can't I use the products that are currently or used to be used to some degree for patients with elevated parathyroid hormone levels. Well, education is very important here because the basic vitamin D over the counter won't work on most patients, certainly won't work on any of these patients. So that first part of education. And then the KDIGO guidelines themselves, the kidney guidelines state that using the activated form of vitamin D or the hormone products that are used most in dialysis patients are actually dangerous. And so the more we can get those messages across and change paradigm, I think the more successful we're going to be.

Got it. Yes. And that makes sense for kind of the U.S. market. And how are you guys thinking about what's the status of RAYALDEE in Europe and Japan and maybe global -- kind of the global outlook broadly?

So Vifor is our partner for Europe. They also have Japan now. They have approval in, I want to say over a dozen countries right now within Europe. European markets not just get approval, you also have to get pricing. So they're chasing that down. They expect to launch, however, that we start in Germany next month. So that will be nice for a variety of different reasons. Obviously, we'll enjoy royalties, but it will be more use of our drug. And they'll continue to launch throughout Europe this year as they receive other pricing approvals. So they took over Japan. Our partner in Japan was JT [ Tory ], who was a good partner. But in large part, they are waiting for the U.S. studies to be completed, which we did. And they're more and more focused on the stage 5 hemodialysis market, which we did do a small Phase II, but that was the bigger market they were interested in Japan. So that will probably still be Vifor strategy in Japan. But I mean it might be more interesting that we -- as you may know, we licensed a product in Nicoya in China. And they're actively seeking a rapid approval. And hopefully, we'll have a chance of getting that launched relatively soon in China with our partner, Nicoya.

Got it. Okay. Great. And maybe last one on RAYALDEE. The company announced results from a study in the outpatient setting with -- patients with mild to moderate COVID-19. So if you could review kind of the results of that study overall and kind of what the next steps are for the program based on the results that you guys have seen?

Sure. So it was a small study, but we think it was an effective study and gave us a lot of very good information. One of the primary endpoints was raising the levels of vitamin D in these patients. The hypothesis is that patients with low levels of vitamin D seem to be getting sicker and more hospitalized. And so if we could get those levels up, we'd reduce that hospitalization. So we were able to successfully raise the level of vitamin D in the targeted range of 50 to 100 nanograms per mil in over 88% of the patients in 7 days or less. And that level stayed through the treatment over the next 2 weeks. And that's compared to vitamin D levels of less than 44 nanograms per mil for everybody else in the placebo level. We've produced the same level, importantly, as I mentioned before, in patients who are obese. And why that's important is you can – over-the-counter vitamin D doesn't work on all of these patients or patients with high BMI. And these patients also, as I'm sure you're aware, are also very susceptible to more severe consequences of COVID. So that was also a very important measure for us. And then one of the key points was it reduced respiratory systems. One of the biggest issues, of course, is the lungs and people can't breathe. And we were able to show that we reduced kind of the adverse respiratory systems in a good portion of our patients. So early data, no clinical significant side effects. The next step will be that we're going to complete the analysis and we only announce top line data. We're going to publish the top line data in peer-review journals and then we're going to review the data with the FDA and EMA in Europe, receive the feedback and then determine whether the next course of action, whether there's a way to get abbreviated trial when we put it on the market or what a Phase III would look like before we sign next steps. But even without that, that published -- publication of the success will be meaningfully important to our salespeople selling RAYALDEE to the CKD population. As I mentioned, the second leading co-morbidity for severe consequences of COVID. If you are a nephrologist and you need to lower your patient's parathyroid hormone levels, which everyone does that has chronic kidney disease, we do not use this drug safe. It also has -- gives you some protective -- some protection against severe COVID hospitalization. So we're hoping it really will help drive the on-label sales.

I think the important point here is that there is a little confusion that in the literature so far as the impact of vitamin D on COVID and other infections. The results of published trials have been confusing. And part of the problem is that the scientists and physicians have not really paid enough attention to the blood levels of vitamin D that were being achieved during the trials, so that there is no correlation between the results and the blood levels, which is the critical point. Now as Steve mentioned, knowing that CKD patients, in particular, have a hard time achieving adequate blood levels and overweight and obese people are in the same category and very often in these trials, there was no mention of their renal status or their weight situation. So now this is the first really well-controlled clinical trial in which the dosage was not only followed with blood results but very carefully monitored with respect to the results. I think the paper will have an interesting impact on the whole field.

Yes Great. No, that's really helpful. And I think maybe with that, moving on from RAYALDEE. Steve, you mentioned your growth hormone product earlier as well that you guys are -- have got in partnership with Pfizer. Are there any regulatory updates on that in the U.S., Europe or Japan? And kind of what's the regulatory outlook moving forward?

So we have a PDUFA date, obviously, at the end of this month for the U.S. Obviously, it's an important milestone for us. Japan, we're expecting first half of this year. We've got pretty good indications in our communications there that we can get it earlier, also hopefully at the end of this month. In Europe, we have the regulatory committee that has given it an approval indication, which, 60 days later, it should be pretty much matter of fact approval within Europe. So as you know, we partnered that with Pfizer. They are our commercial partner, also in charge of regulatory and manufacturing the product, one of the leading players in the daily growth hormone market. It's a $3.1 million market dominated right now by the data. There's one competitor, Ascendis, that's got the long acting has approved in the U.S. Has the way but we're ahead of the Japan by probably 2 years. And Europe, we're somewhat equal. They don't have approval yet there either. So pretty excited about the opportunity there.

Yes. Absolutely. And you mentioned Ascendis. I mean how do you guys and Pfizer think about, obviously, a big opportunity, but being second to market, how do you guys think about what the most effective way is in these different geographies to compete and gain share vis-a-vis Ascendis?

Well, it's a big market. As I mentioned right now, there's 7 players in the daily. There will be 2 of us. There's Novartis -- Novo Nordisk is also pursuing the long-acting indication. But if you do the simple math, and there's plenty of -- the pie to divide up. We did a broader study -- more broader global study, which I think gives Pfizer, a bigger footprint. As I mentioned, Japan is probably the second biggest growth hormone market, and we'll enjoy that territory by ourselves for a year or 2. Europe is close. I think we'll both win approval within kind of around [ year ] timing. And we're not that far behind in the U.S., Pfizer has been selling this product for 25 years. And they are on all the formularies or in front of all the endocrinologists. And so we feel pretty good about their ability to compete.

Yes, okay. That makes sense. And -- maybe just taking a step back to kind of licensing strategy overall. So I know that you guys have announced a few licensing deals in the past year. Are you still pursuing a licensing strategy for your early-stage programs? And kind of what part of your pipeline do you foresee developing independently? How do you guys think about that?

I think that we will. I mean we have been -- obviously, now we're making a fair amount of money with BioReference. But before that, we were not a cash-generating business. We're invested in continuing in growth in R&D. And so the prudent thing to do for us was through allies, we see even here growth hormone with license side as well. So we have an early-stage pipeline in Israel, the same kind of group that we developed a growth hormone through there, mostly preclinical. We may go in the clinic with 2 other rare pediatric diseases later this year, but it's early. We have a couple of other items in our pipeline. We have a long-acting hemophilia drug that we're talking about possibly licensing. We have licensed, as you probably read, 2 of our products to LeaderMed, to develop for the Chinese market. We will continue to explore that, and we don't necessarily feel the need to hire another full commercial team for areas outside of what we already have in CKD. But it's -- you never say never, but we'll continue to develop interesting and opportunistic drugs, and then probably we'll look for partners to either further development or commercialize.

Got it. Okay. Great. Well, those were all the questions that I had. I mean, we have a really interesting discussion. Really appreciate the time that all of you have provided, and all the work that you guys are doing in this really interesting time for the company and a challenging time for all of us as well. Maybe I'll pass it over to -- to you guys to Dr. Frost and others just for any closing remarks maybe from your side.

Well, I think that you've heard from some of our key players here. And Katherine and Jon, in particular, are producing the big numbers at the moment. But we're looking forward to that changing over a period of time. RAYALDEE has a lot of potential based on the new data that's being published on the impact of weight and now with the COVID story. So the rest of the company is where you're going to hear more about going forward. Thank you. Anybody else, say something in conclusion.

Thanks, Adi. I appreciate it.

Sure. Thanks. Thank you to the audience for joining us today.