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

Welcome, everyone. I'm Sanjibita with JPMorgan Healthcare, and we are pleased to have with us Dr. Elias Zerhouni, President and Vice Chairman of OPKO Health. For logistic purposes, please reserve any questions you may have until the end of the presentation.

Thank you. Well, thank you very much, and thank you all for attending. Last year, we presented the fact that OPKO had acquired a company called ModeX Therapeutics of which I was a co-founder. And since then, we've achieved quite a bit of milestones. But across the company, very important milestones occurred in 2023, which really announced the transformation, something that we've been strategizing to make happen over the previous years because one of the major milestones that was met this year was, in fact, the approval of our long-acting growth hormone product, somatrogon known as NGENLA, which was approved by the FDA in June, and it's one of the leading, long-acting growth hormone product in the world, partnered with Pfizer and now approved in 44 markets, launching in the U.S. in August. But at the same time, we have really advanced our technology to the point of really validated partnerships with major pharmaceutical companies like Merck, who license our Epstein-Barr virus, and I'll tell you more about why they were so interested in doing so; and BARDA, the government agency, who came to us and wanted to support us to really grow multispecific antibodies platforms for viral diseases, viral infections starting with COVID, which they think is not going to go away anytime soon. So that was really -- those are very important milestones, but we also initiated the final steps to enter Phase I in the first half of 2024 with our first multi-specific LASER antibody for solid tumors. We completed the Phase I evaluation of our first version of a multispecific for HIV, and we've been successful. This was supported by NIH and then because of the success of that first Phase I, we are now moving into actually a more potent next-generation tetra-specific antibody, the first one being a trispecific. And we have also seen improvement in our Diagnostics division, BioReference Laboratories. As you know, it did extremely well during COVID. And obviously, the drop in COVID revenues created a challenge, which we've worked on in terms of operational efficiency, productivity gain and restructuring strategies. And I think the rest of the businesses of OPKO have achieved stable growth and stable revenues. So let me just go and talk a little bit about what it meant financially to have these milestones achieved. So when Pfizer obviously obtained the approval from the FDA, it triggered a $90 million payment, which is part of the series of milestones that we are entitled to. And in that case, we still have $100 million of milestones coming for additional indications and gross profit share on global sales. As we reach certain levels, we're entitled to milestones. And we can give you more details with my friend, Adam, our CFO. At Merck, we received a $50 million upfront for the license of the EBV vaccine and all of expenses are being reimbursed as we go all the way to the point of Phase I, which we believe will happen this year. And we have $872 million in total milestones that are essentially both development and commercial milestones with royalties going from single digit to double digits, depending on the amount of global sales. In terms of the COVID-19 multispecific program, the government identified $168 million contract with a Phase I committed of $59 million. And so you can see that the year has really validated both the fact that our companies now are fully integrated. Second, the fact that we have been able to attract interest from very expert entities like Merck and BARDA. If you look at the human growth hormone franchise, remember that we did this because children are getting 365 injections a year, once a day, and therefore, there's a question of adherence. And adherence is much better with a long-acting product. This has been shown for multiple medications, other drugs. And so there's no question that the acceptance of a long-acting, once-a-week product is going to really convert the market to a great extent. It's a growing global market. It's $5.5 billion today, but is expected to expand by about 12.3% annually. And it's really an innovation, especially for children and really well managed by Pfizer, our partner, our commercial -- who has the commercial lead and has led the program in partnership with us. So when you look at the current market, it's about $5.5 billion, about 7 competitors are providing daily treatments. But at the end of the day, there will be 3, one of which will be the NGENLA product and the growth is 12.3%. And as you can see here, the light blue is what we expect the conversion with the growth to be from once a day to once a week acting. So you can see that, in fact, this will really be of great benefit to OPKO because we have a global profit share, which depends actually on the conversion ratio. The more the conversion to the long-acting, our drug, the more the royalty equivalent of our revenues will grow. So I think this is extremely positive news. This is a revenue-generating opportunity for us that will support the company going forward. On the innovation pipeline, let me take a little minute to tell you what am I talking about when I say technology platform or proprietary platforms. These came from work that my colleague, Gary Nabel and myself directed when I was the Head of R&D for Sanofi. In 2012, we started what we call the breakthrough lab. And the concept was very simple. You needed to have multi-targeting in a disease process to be able to be effective. And you know that in medicine, we use combination therapies all the time. Except that in a combination therapy, you have to develop each component separately, which is extremely costly because you have 4 developments. What if you could develop an antibody that instead of having 1 specificity, had 2, 3, 4, 5 or 6, then you could really combine the therapeutic action into 1 molecule. So it's a 1 molecule, multiple medicines concept. And it can be served as we say, in immuno-oncology, and I'll show you examples of that, in infectious diseases. This is why DARPA and BARDA were interested in working with us because we can attack a virus not from 1 specificity but 4. And when a virus is attacked simultaneously by 4 binders, if you will, that attach to it, it is neutralized. And so when you look at that proprietary platform, this has about 40 patents around it. It's well protected, and it is the core of our multi-specific antibody approaches. On the other side, the multivalent, nanoparticle vaccines is the technology that Merck was very attracted to and really is underlying the EBV virus. Why? Because we use a ferritin particle, which we can engineer to contain multiple antigens, not just one. And so when you think about vaccines, against a virus, you want to have as many antigens possible on your platform to immunize the patient against that virus. So the key thing here is to understand that these platforms are plug and play. So it's not like 1 platform for 1 product. We can essentially exchange every single part of the variable part for the antibodies, we can make bispecifics or tri-specifics, quadri, all the way to 6 specificities. And we can interchange them in silico. We can design an antibody in a very fast fashion. I'm talking about weeks, not months, and we can essentially exchange the code for the particular warhead that we want very, very quickly. The same is true but to a lesser extent, in the multivalent nanoparticle vaccines because sometimes we cannot build too many antigens on any one particle. So sometimes you have to use 2 types of antigenic valances on the particles to make a vaccine that has a broad coverage. So that's the technology. That's what the company is based on. If you look at the Epstein-Barr virus, why did Merck approach us to license this vaccine, it's because it's the virus that is creating infectious mononucleosis. It's the kissing disease. It's what people call the kissing disease because the virus creates a disease called infectious mononucleosis. But the problem is that, that disease really is associated with over 200,000 cancers per year. So it's a cancer-provoking, cancer-associated virus. And more recently, it was shown to be probably closely related to multiple sclerosis. And so when you think about the implications of a vaccine like this, if you can prevent its entering the human population, you'll probably decrease the number of EBV-related cancers and EBV-related multiple sclerosis. So it's a program that Merck is very excited about. It's a great partnership. It's advancing extremely well and hopefully, will be in the clinic very soon. When you look about infectious diseases, because of what I said to you about the platform, which allows essentially a selection of the best antibodies out there. So the way we do it, we work with monoclonals with folks who have neutralizing antibodies against would be COVID or HIV or flu, whatever, we test them to see how neutralizing they can be on any one part of the virus. We know structurally where that antibody is docking. And then once we have that information, we design a multispecific in a plug-and-play fashion. And then we can design up to 150, 200 versions and assay them. And very quickly, we've identified, essentially, the more potent antibody possible against any one particular virus and that's what BARDA was very interested in. We can do it very quickly. But there is another aspect, and that is that we can design this into a single RNA chain, whereas if you do design a monoclonal antibody or a bispecific, you need 4 different plasmids, 4 different codes to encode that antibody. And then you hope that it will assemble properly. We found a way, and we patented this technology, that can allow you to do it in 1 long code with the appropriate linkers, which leads to a self-assembly of the antibody. It assembles itself in the proper way because it's designed that way. And so the quickness and the ability to attack the virus from multiple points does 2 things. It's more potent, the doses have to be lower. It has the potential to be given by mRNA rather than antibodies themselves. And more important, the virus does not escape. It's not like what we've seen with the monoclonals, where after a few months, a new variant emerges, and it's very difficult for that antibody to remain efficacious. In fact, the antibody that BARDA was interested in was tested now against the new variant JN.1, which has emerged, and it's just as active against the new one as it was against the old ones, even though we didn't know about the new one when we designed that antibody. So in COVID-19 is funded by BARDA, it would really lead to the ability for us to protect, especially immunocompromised patients. 5% to 10% of the population cannot develop antibodies to vaccines. Sometimes their immune system is limited. And then there's a potential for treatment in HIV for both prevention and long-term therapy. And that's funded by NIH, and NIH is committed to fund the clinical trials for these very, very unique antibody. So what are we trying to do? We're trying to make OPKO appear as a trusted partner and extend our footprint initially through partnerships. So these are non-dilutive sources of funding. Pfizer, now we have been able to get an approval in 44 countries. This is the third drug that OPKO gets approved. Merck, which values the scientific innovation and has a need for enhancing their vaccine portfolio and has done a terrific job along with us, but also independently for their own vaccines like GARDASIL, for example. BARDA, that allows us to share risk and cost share. NIH, DARPA, which is very interested in the application of our technology in terms of protecting the public with a very, very potent mRNA-based gene therapy based on our technology. So this is where we are. This is what 2023 was all about. And I think we will see now that we are going to enter 2024 with clinical developments. One of the things that is most exciting is that when you do this, you can think of structures that can actually help you in immuno-oncology in a way that no one else can. And this is what we've done with what we call LASER antibodies. And the LASER antibodies are really special because they can have 2 specificities that are specific to cancers, cancer cells. So they can select the tumor. And it's very rare that normal tissue will have the same 2 targets on the cancer cell. But then on the other arm, it has a CD3 and the CD28. And for those of you who know, CD3 is to activate the immune cell, and CD28 is to extend its survival. That's what we call this lymphocyte activation and survival extension receptor antibodies. So we dock on the T cell, and we make it active and multiplies and survives longer, which makes it a much more active antibody, at least in the preclinical data that we have, and we are going to launch this in Phase I in second quarter. And the FDA is very excited because what is really interesting about an antibody like this is you can attack 10 different cancers with that, not just one. So lung cancer, pancreatic cancer, colon cancer, we have several targets that we're going to try against. Same thing is true for B-cell malignancies and lymphomas, we have a second molecule, which is not as advanced as the first on the [ MDX2001 ] and we'll be talking to you more about this during the 2024. So we have a robust pipeline. I think NGENLA is a driver of revenues now. We need to extend the label to adults and other pediatric indications. The tetraspecific LASER for solid tumor is entering clinic in the first half of 2024. The treatment of leukemia and lymphoma is later. And we have a whole series of multi-specific immune modulators that can be used both in cancer and immunology. And then the antivirals, I told you about them, HIV; the vaccine against the Epstein-Barr and the COVID multispecific antibodies. And you can see on the right side, all the partners we have been able to attract. Now one of the issues we faced at OPKO is the management of our Diagnostics division has done extremely well during COVID but not so after COVID and the drop in revenue. So it's been a transition year where we've been trying to bring this division back into profitability because it started losing money and by addressing several factors. One is basically the cost structure. We had 8,000 employees at the peak of COVID. We now have less than 3,000. We've reduced the cost of operation. We have also focused on high-growth areas in specialty testing, especially oncology, women's health and also went after the market of health systems and urology, which remains a very profitable area. We've essentially innovated mostly in oncology. And we have, for example, a full panoply of testing, which is extremely well appreciated. We've been able to grow our oncology business by almost 15% just this year. And then we're expanding our service lines, especially with pharma. Coming from pharma, understanding pharma, what we decided to do was to offer actually services to pharma companies that are in the oncology field, in particular, because of the data that we have and the ability for us to identify 4 clinical trials, the right patients at the right time. So those led to an improvement in our bottom line operations with a 41% improvement from Q2 to Q3 in our operating loss. And I'm hoping that we will become profitable this year and probably breakeven towards the middle of the year is what I hope we will be able to achieve. So the operating businesses continue to do well. Through Q3, we've had $681 million in revenue. So you can see $900 million of revenues for the year. Royalty sales are [ $21.7 million ] for the Q3 and about $30 million for the year. And you can see the distribution of revenues from the different entities that OPKO operates both in Chile, in Mexico, in Spain, in Israel, in Ireland, all of which are cash positive. And hopefully, if we can improve the situation in the BioReference Laboratory this year plus NGENLA, I think you'll see basically an earnings per share improvement that we think and we hope will be realized all within 2024. So what are the key takeaways? 2023 was a transition year and transformation year and a successful year. We received FDA approval. We created new partnerships with over $1 billion in potential milestone payments that I described to you. We improved the profitability in the Diagnostics segment, but we need to do more. And ModeX is now fully integrated into OPKO operations and really going extremely well in terms of our ability to get nondilutive funding. We opened a new laboratory in Newton, Massachusetts. Our unit has grown to 50 employees. But more importantly, it's been validated by the reception of other entities in the marketplace to our technology. What are we going to do in 2024? Expanding in general; is it trying to help in the conversion from once a day to once a week; advance our pipeline, as I said; return to profitability of BioReference; expanding the pharmaceutical operating businesses would be Ibero-America, South America or here in the U.S; and working on expanding our strategic partnerships with a lot of incoming interactions that we're dealing with at this point. So I'll stop here, and I want to thank you for your attention, and happy to take any questions from the audience.

Thank you for the presentation. Could you tell us a little more about your expectation for NGENLA going forward?

Expectations for NGENLA?

Yes.

I'm going to ask Adam because he's been very close to -- with Pfizer and managing the quantitative relationships, not the scientific ones but -- Adam?

Yes. So in 2023, we realized about $5 million in gross profit share during the third quarter. We guided the fourth quarter to receive between $8 million and $10 million. We expect as Pfizer continues to roll out and launch the product throughout '24 to see meaningful growth off the exit run rate that we just discussed.

Okay. I have a few more questions. You did touch upon the return of profitability at BioReference. Do you have a time frame by when you expect that could happen?

Great question. Adam knows the financial plans, maybe you could share that.

Yes. So Elias mentioned that we would expect to get to breakeven by midyear this year. So through cost initiatives, through growth plans as well as rationalization of some of our geographic footprint will lead us into that breakeven and profitability as we continue the remainder of 2024.