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

Good afternoon, everyone. My name is Mallika, and I'm an associate with the JPMorgan Healthcare Group. It is my pleasure to introduce to you today, Dr. Elias Zerhouni, who is the President and Vice Chairman of OPKO Health and Co-Founder of ModeX. Before we kick off, I would like to remind everyone of the format of the session. We will start with a presentation followed by Q&A. So please have your questions ready for the Q&A part of the session. I will hand it over to Elias. Thank you so much for joining us today, and we look forward to hearing the story.

Thank you, Mallika, and welcome, everybody. I'd like to cover really the company, OPKO, and evolution that it has gone through over 2022 and what we're thinking about for 2023. Give you the time to read this. Done, we'll go the next one. So let me just say that first and foremost, to really appreciate the presentation, you have to get a sense of how OPKO is organized and what is OPKO. And you can think of it as a diversified diagnostic and pharmaceutical company with platforms in a growing health care landscape, a platform in diagnostics and the platform in pharmaceuticals. The main asset in Diagnostics is bioreference laboratory, which is the third largest clinical laboratory in the U.S. and has gone through both growth during COVID and deceleration post COVID in 2022 that I'll talk about. And I also had some very prominent specialty tests in oncology, like the 4Kscore test. On the other side are pharmaceuticals. And if you look at pharmaceuticals, you have in-line pharmaceuticals. For example, the division in Latin America and European Pharmaceutical division, which has continued to grow over the previous years. NGENLA, which is Somatrogon, which is a long-acting growth hormone, partner with Pfizer, and undergoing launch right now outside of the U.S. RAYALDEE, which was launched again in Q1 2022 by our commercial partner Vifor. And ModeX Therapeutics, which is the new division within OPKO, which merged with an OPKO in May of 2022. So that's really the composition, if you will, of matter that we are talking about. But what I'd like to do is really summarize what 2022 has been for us. It's a transformational year for OPKO Really. One, we went through a transition post-COVID of the Diagnostics business back to core and the specialty diagnostics. As you know, COVID's testing grew dramatically, but it also stopped growing dramatically because of 2 things. The pandemic slowed down and there were at-home tests, what you would call point-of-care test that you could do at home that really took away from the PCR testing, which was the basis of what the growth was for the major laboratories. And so we underwent an aggressive cost reduction program. We went from 8,000 FTEs in the company to serve all the testing sites around the country to today, 3,000, 3,100 FTE. We also reduced costs and infrastructure costs by $100 million by the third quarter, and we're going to reach probably $140 million by this quarter or next quarter. What we also realized is that the growth in our business is different in different areas, and I'll tell you about our specialty focus. At the same time, we've had a continuing in line performance in the pharmaceutical business with particularly the launches in Europe by Vifor for RAYALDEE and the launch of the long-acting hormone, growth hormone which was approved in ex U.S. markets. And in the U.S., we have an ongoing FDA review. And I think the acquisition of ModeX, which I'm a Co-Founder with my Co-Founder, Dr. Gary Nabel, who's here, is really transformational. It's transformational because it widens the spectrum of what OPKO can do, especially when it comes to the kind of platform we brought in from ModeX, which allow a very significant leapfrog over current technologies in the sense that we now are able to have multi-specific, multifunctional technologies put in place, which I will describe to you in a minute. If you then go and try to look at the evolution of the Diagnostics division, what you realized is that by reference lab, as I said, one of the largest nationally has really gone through an enormous transition post COVID, but has 2 fundamental set of attributes that I think I'd like to dive with you. One is the deep expertise across the core commercial lab business, the ability to deliver with a quick turnaround time, high-quality testing, over 3,000 clinical tests are available. So we can cover essentially the country with the testing menus that we have. But we also have a very strong focus on the high-growth, high-margin specialty diagnostic business, like oncology, women's health, urology and strategic advantage, where we provide services that larger organizations really cannot provide. So if you just talk about the market, the total market is about $104 billion in the U.S. I think if you look at the outpatient and the independent labs, total addressable market is about $36 billion. And if you look at the key areas of focus for BioReference, compared to the core business, which is the total market, the total market grows at about 3% CAGR. But if you look at where we are focusing right now in the segments we're looking into, oncology with our GenPath division is growing at over 10% a year. Women's health, same. Urology, especially with a 4Kscore over 10%, and what we call joint ventures or partnerships, which are really growing in importance, and I'll tell you why in a second. And that represents about 50% of the business and is strategically focused on these high-growth areas as we speak. So we're really trying to bring innovation into the portfolio because there is a demand for that. So for example, if you look at our GenPath oncology products, there's a high demand because in liquid cancers, people want a quick diagnosis that is not just the diagnosis of disease, but an actionable diagnosis that orients the oncologist towards the right therapy for the right patient at the right time. And then we were able to deliver, and that's what explains the growth rate. Now we have new demand for what we call minimal residual disease in oncology, where oncologists want to know if their patient therapy is effective. Oncologists want to know if there is a marker or a gene mutation that they need to know about to direct the therapy towards the appropriate regimen, if you will. The same is true in women's health. When you want to do neonatal, noninvasive prescreen, pregnancy screen, pre pregnancy screen, you really need to have both the genomics and the ability for you to not only deliver the test, but analyze the test. And when you're talking about high-risk pregnancies, you really need to provide to the physicians it actionable path to changing the management of the patient. That's what BioReference is trying to do now as we recover from the post COVID. But other things we also want to do is advanced the lab in what we call value-based care where, in fact, our activity is to guide patient groups, accountable care organization, integrated health care system towards an optimized pathway to lower cost therapies and management of their patients. If you look at the evolution of the Pharmaceutical division, it's pretty simple. RAYALDEE, which is our main product approved in the U.S. and Europe for treating secondary hyperparathyroidism in patients with Stage 3, 4 CKD or chronic renal disease. Why is that important? Because as the patient evolves in chronic renal disease, what happens is that there is an increase in the amount of parathyroid hormone that is generated by the failure through the inability to generate vitamin D. And because of that, that impacts on bone metabolism, increases calcium and accelerates calcification in the vascular system. So when the patient becomes renal insufficient and needs dialysis, they come with a situation where, in fact, the lack of control of secondary hyperparathyroidism leads to a patient that is a lot more difficult, a lot more expensive to manage once they reach the dialysis stage. So it has been approved. It's the only product approved by FDA to treat secondary hyperparathyroidism. It definitely reduces plasma PTH and has a definite effect on the calcium or phosphorous balance, which are key drivers of vascular calcification and is particularly effective in obese patients. And so RAYALDEE is now being launched by our partner, Vifor in Europe and continues its journey here in the U.S. NGENLA, which is Somatrogon, which is a long-acting growth hormone with a once-a-week injection, has been granted regulatory approvals in major markets this year, including Europe, Japan, Australia and Canada, and is ongoing its review at the FDA. And so we are very proud of the fact that Pfizer has continued to support the product and launched in extra U.S. and continues to carry the product forward in terms of its FDA journey. Now obviously, the transformational step I was referring to is the fact that OPKO made a decision to merge and ModeX therapeutic came together in May of this year. Why is that important? Because it brings to OPKO a capability that wasn't there before. And that is the ability to enter first-in-class molecules that can change, in fact, the total profile of the company by entering very protected patented drugs and using platforms that are really unique to OPKO at this time, which have attracted a lot of attention from many parties because the technology unites, if you will, the power of multiple medications in medicines in a single molecule. That's the concept. So the transformational step for OPKO and ModeX Therapeutics is really changing the nature of the constellation of entities that I described to you. One is because it brings transformational technologies based on an emerging field called multispecific antibodies and multivalent vaccine platforms, and I'll show you the portfolio. But we're focusing on oncology, infectious diseases, vaccines and immunology, things we know well, and we have already established with our experience at Sanofi when we were running the breakthrough lab from which these technologies have come, but we have continued to develop the technologies with an expansion of our IP with 8 additional patents. And I think this is the nature of what we do is that once we advance a candidate, then there is a high attractivity to strategic partnerships that are really going to support the areas where OPKO is not large enough to support the development of a vaccine, for example. But we want to keep exclusivity on some of our molecules, especially in cancer and immunology. So the transformation, if you will, is also due to the fact that a new group of executives has joined the company, not only myself and Gary, but Dr. Elizabeth Nabel, who used to be the President of Brigham and was the Head of the National Heart, Lung and Blood Institure, Ji Zhang, who's the Chief Operating Officer, who worked with me for 9 years at Sanofi, outstanding operational chief understands clinical development. Alexis Borisy, I don't think needs an introduction. He was 1 of the managing -- he was the managing partner of Third Rock. He is the founder of several companies and has been on our Board since the beginning. John Mascola was the Lead Investigator at the NIH, the Director of the VRC, the Vaccine Research Center, which codevelop the Moderna mRNA vaccine with Moderna from the NIH. Ronnie Way does our insilico biologics discovery using a tremendous amount of digital AI. And then if you look at CJ, who -- CJ Way, who is the Head of Synthetic Biologics. He uses the platform that I described in the plug and play fashion. We can turn around the development of a prototype in 6 weeks, which is something that in the industry is quite unique. So we can compete, if you will, when there is a time-sensitive emerging opportunity like COVID, for example. And then Dr. Shalani, the CMC, this is our first recruit. We think CMC is essential. And Dr. Yang, who's been Head of Research and worked with Dr. Nabel for many years. Now let me just give you a little bit of medical talk here and to explain the foundational basis of what ModeX brings to OPKO. Now if you look at any disease as I was at the NIH and at Johns Hopkins, we realized 1 thing, is that there is no disease that relies on any 1 molecule, any 1 target. Usually, it's a network of molecules. And these network of molecules, as you've seen, for example, in autoimmunity, you use 1 TNF alpha, for example. But it can also act on for rheumatoid arthritis. You can act on all other diseases. Likewise, when you look at several diseases, like for example, allergies, they're really dependent upon 3 or 4 molecules, not just one. That's why, for example, in Sanofi, we pushed the development of a drug called DUPIXENT, which attacks the IL-4 and the IL-13, by modal activity, bi-functional activity. So we ask ourselves, is there a way to really do this better. Instead of having a cocktail of molecules in a combination that people use today, what about developing and inventing freely dream molecules that can attack multiple targets in synergy at the same time. Now think about it, it really reduces tremendously the development cost of the products that you want to attack 1 disease. Second, once we have this platform, which we have now patented and are developing candidates with, you can apply it to many areas. And that is the essence of what we are talking about. Developing a platform where you can have 1 molecule delivering 2, 3, 4, 5 therapeutic interventions in the body for whatever disease you're interested in. So that's the general concept, if you will. This is the strategy. And we have developed a platform called the STAR platform, which is a synergistic targeting of antigens and receptors where we can in a single chain go with 6 different specificities. We've reached 4 right now, and we have candidates with 1, 2, 3 and 4 specificity. Obviously, when you go to 4, you have different functionality as well. It's really the technology that lends itself to the mRNA technology because you can code the multi-specific antibody into an mRNA code and then deliver it just like you deliver an mRNA vaccine. And this can accelerate clinical development even more and reduce the cost. I mean if I have, for example, a quadry-specific single molecule, what I call the dream molecule, I've basically reduced my development cost maybe by half or 3/4. So this is the strategy. I think the portfolio, as you'll see, is quite promising because with the collaboration and merger with OPKO, we've been able to advance multiple molecules in infectious diseases. We have an HIV bispecific in the clinic. COVID, we have several prototypes that are a great interest to many partners, an EBV vaccine that is also very interesting, especially today once -- because the connection, the papers that have shown that multiple sclerosis is actually caused by EBV has really tremendously increased the interest in finding a prophylaxis for EBV. We have 2 solid tumors candidates and 1 liquid tumor candidate for the oncology field. And then a field that we call T cell rejuvenation. So we've found a way to actually correct for immune deficiency, especially in the old age group. Now where are we in terms of the ability for us to go into the clinic? EBV will probably be in the clinic at the end of this year or beginning of '24. The same for the cancer molecules. And I think the COVID depends on really the evolution of the pandemic and the need, but we already have candidates that can go into the clinic by the end of this year as well. HIV continues its development. So as you can see, there is a, if you will, a panoply, a choice that OPKO has, that has really increased in its ability to create value and to create partnerships that can fund actually this research effort as we go forward as well as create wholly owned molecules such as the cancer molecules, which we would like to really keep for OPKO's benefit. And we will have an R&D day in this Q1. I don't know the exact date, but we'll let you know and hope that you will join us. So what's the 2023 and beyond? I think 2022 has achieved the necessary transitions and transformations that I'm talking about to form a strong basis for growth in 2023 and beyond. I think you've heard about the ongoing and upcoming product launches, the portfolio development of ModeX supported by potential strategic partnerships with both large pharmas and government agencies. We have 3 programs, 2 in oncology for the pre-IND stage and 1 is the EBV clinic, I mean, the vaccine to reach the clinic we hope by early 2024 for demonstration of effectiveness and safety, I mean, of safety and lack of immunogenicity for the antibodies. We need to prove that. And then when you see continued performance in Latin America, Europe and in the Pharmaceutical division and resuming growth with different strategies that BioReference in 2022. So with that, I'd like to thank you for your interest and open it up for questions. Thank you very much.

Thank you, Elias, and congratulations on all the transformative work that you and your team have accomplished.

Thank you, Mallika.

We will open up to audience Q&A as well as questions that come in virtually. So please feel free to raise your hands and we can pass around the mic.

So the question is what's the R&D investment in ModeX? ModeX is about 25 FTEs right now. And if you know about biotech, when you're in the discovery stage candidate, that cost is quite controlled, and it's about 400,000 per FTE. So we have a run rate of about 10 million. Obviously, as we get closer to clinical, it will change. But right now, we're running about 10 million a year. No matter, Dr. Adam is here, and correct me if I'm wrong, Adam. Okay. Any other question.

Yes. Well, of course, a diversified business. So what are some of the advantages and challenges of running a company that has both diagnostic services as well as novel pharmaceuticals?

So there are challenges and there are opportunities. The question was, what is the challenge of running a company with such a diversified portfolio, both in diagnostics and therapeutics. I think there are opportunities and challenges at the same time. The opportunities are these. A lot of the medicine practice today, U.S. and worldwide, is going to precision medicine, right? And because it goes to precision medicine, which is really the concept of having diagnostics that apply to the patient, whether it be their genes, there would be their biomarkers, there would be there status, health status, where they have XYZ, and that becomes critical to the precision therapies that people want to practice. I mean today, when you look at cancer, there are now, not 10 cancers, there are 220 cancers. Every one of which can be treated very differently, depending upon if you have this mutation or that mutation. So you see we are going to an era of what we call theragnostics, where the therapeutics is guided by the diagnostics. I see synergy there that present an opportunity for growing the BioReference plant business into the specialty areas that require that sort of guidance. It's not just oncology, by the way, even metabolic diseases, diabetes. When you are treating a patient with diabetes, you want to prevent emergency room visits, you want to prevent hospitalizations. Well, there are risk tables that we know through diagnostics that can identify the patient at risk and prevent the hospitalization. The challenge is that it's different -- these are different businesses. I mean, 1 is a widespread service, fast turnaround business. One is a long-term, sustainable R&D that you need to go through the whole pharmaceutical development. That's ModeX. But the other is the commercialization. So we are really a company that can use the synergies between the different areas. Well, it also requires a different mindset in different sort of human capital to work together in maximizing those synergies. For example, a gentleman asked me about ModeX. If we had been independent, we would have had to recruit Financial Officer, like Mr. Logal and IP and so on. So OPKO provides that synergy across the entire companies. But it's challenging because the markets, the call points, the channels, the reimbursement dynamics are not always the same. And that's where I think we want to evolve into a market where the company can have products in the patent protected pharmaceuticals rather than commodity businesses.

Congratulations on the ModeX acquisition. What are some of the milestones that we can expect in the pipeline there?