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

Good afternoon, and welcome back. Thanks for joining us for another session at the 44th JPMorgan Healthcare Conference. I'm Brian Cheng. I'm one of the senior biotech analysts here at the firm. On stage, we have the team from OPKO Health. And here, the session here is a fireside session with the team. Maybe the OPKO team can introduce themselves, who do we have on this stage?

Sorry. Can you hear me okay?

Yes.

I'm Elias Zerhouni, I'm the President of OPKO Health. I became President of OPKO Health because I cofounded a company called ModeX Therapeutics, which was acquired by OPKO Health in 2022. As part of that, I ended up being President of the acquiring company. And I'm a former Head of R&D at Sanofi, I'm a former Head of NIH and I was also a former academic at Johns Hopkins University.

And I'm Adam Logal, I'm the CFO of OPKO.

Elias, it will be great to kick off our conversation here. For those of you who don't for those people that are in the audience who don't fully know the OPKO Health story, you'll be going to get an overview of what you're working on. And if you can go through different components of the business and how you're thinking about the catalyst looking for it, that would be great.

Yes. Thank you, Brian. First of all, let me say that OPKO Health represents a large range of companies going from a clinical diagnostic laboratory known as BioReference Health to a biotech company called ModeX Therapeutics. And so it's really a large span of biopharma that is covered by OPKO Health. So let me cover for you the relevant things that have happened over the past year, 1.5 years [indiscernible] so you understand. Our strategy has been to truly focus on therapeutics as much as possible and also divest from clinical diagnostics as much as possible to rebalance our balance sheet. And Adam can talk to you about that. We are in a very strong position now. We've been able to divest of about 40% of our clinical diagnostic business because of its overextension around the country, which was quite expensive and negative in terms of profitability. And we are reaching now breakeven and profitability with the remaining business, which is centered in New York and New Jersey and with the services, both in terms of clinical diagnostics, but also cancer diagnostics with our lead cancer task called the 4Kscore. And we can give you more detail about that. Then on the other hand, of the clinical diagnostic business, we have the biotech business, ModeX Therapeutics, which was cofounded by Dr. Gary Nabel and myself as part of a spin out of a laboratory that both of us created at Sanofi. And as we move down of Sanofi, we realized that Sanofi was not going to pursue the research we started, and we made a decision to create a separate company and recover our labs. So we did that. Now the laboratory of ModeX and the idea behind ModeX Therapeutics is the following. There is no single disease that you can name that has a single treatment -- I mean, a single therapy. They usually use combination therapies will be cancer or immune diseases. It's very hard in biology to modify a biological system with a single drug. So we came up with a concept of multispecific platforms, multispecific antibodies, multispecific vaccines and we put that in place, and we created a company in 2020. And then we quickly generated quite a bit of interest. So the significant things that I can bring to you for today is, number one, we had a in licensing by Merck, one of our vaccines called the EBV vaccines, Epstein-Barr Virus. And we licensed the vaccine to Merck for $50 million upfront and milestones of about $870 million and royalties. And we were able to -- with the support of Merck financially to develop the vaccine all the way to Phase I at the beginning of Phase I, at which time Merck took that and developed the vaccine further at their cost and is Phase I is completed, and the major event this year is going to be whether or not this vaccine, which has the potential of being one of the most widespread cancer vaccine and also a vaccine against multiple sclerosis potentially will progress. And that's really a major event if the company Merck, and we don't control that goes from Phase I to Phase II because everybody knows in the vaccine trials, that's the moment where you really have confidence that the vaccine is performing according to plan. In addition to that, we wanted to become a more clinical company. So we have 2 other products that have entered the clinics. One is MDX2001, which is a cancer solid tumor product, which has 2 targets on cancer, [indiscernible] and to target on T cells, so it's a T cell engager. And it's been going on through its Phase Ia. It's almost at the end of Phase Ia and we've had -- we treated 23 patients so far. And we think we have an effective dose and we're going to do a Phase Ib this year to try to focus on the tumors that respond best. And we have some evidence of that already, although our main goal is really safety and tolerability. We have entered another drug in the portfolio called MDX2004. It is a unique first-in-class never done before molecule. Why? Because I of the fundamental issues that you face in health care today is that many interventions lead to immunosuppression. And if you look at cancer, if you look at patients who receive other drugs, there is a common link in fact that the immune system weakens. Patient becomes exhausted, unresponsive or with aging you have what we call [ immune centizens ]. And no surprise, you see that lots of infectious diseases, COVID, flu, RSV, others, pneumonias occur in older age and with age comes frailty. And so the idea we had was can we come up with I compound that can rev up and rejuvenate the immune system. And we think we have that in a trispecific antibody that we created [indiscernible] molecules that has 2 antibody binders and then 1 ligand. It's called CD3, CD28 4-1BB. And it's in the clinic already with about 4 patients done, so I can't comment very much, but as a signal development. In addition, we're going to enter 2 more molecules in the development pathway. One is supported by the government by BARDA for COVID and also potentially flu. And we've got clearance from BARDA, and we're we've applied to the -- or applying to the FDA. And then the last one is MDX2003, which is a quality specific. It's the first quadri-specific against lymphoma and against leukemia and liquid cancers in general, right? In addition to that, we entered into a very unique relationship this year with Regeneron. And Regeneron, as you know, is a major innovator in antibody technology. And we've decided to collaborate with -- using their binders, which have been developed over the years and using our platform which is the only I that can really do more than bispecifics. We can do trispecifics, quadri-specifics or penta or hexaspecifics, and we decided to work on 4 programs together, and that has already started. And again, it's a nondilutive financing, and so that allows us to expand our portfolio at pretty much low risk, and it involves obesity and metabolism. It involves cancer, it involves immunology, right? Those are the areas with very specific targets that we've defined jointly, okay? Last but not least, over 2 years ago, we realized the potential of in vivo CAR T cells, and we've developed a product a platform called in vivo CAR T, but the difference with our platforms that we can target it using multi-specific antibody, we can target it to any cell type. And on top of that, we can create multispecific chimeric antigen receptors. So the versatility and the technology we developed, which is really unique and they're free to operate really is attracting a lot of interest. In addition, our mainline businesses and Adam can tell you are doing well. our international pharmaceutical branch is doing well. Our RAYALDEE product is doing well. So we've balanced the balance sheet as well by retaining royalty, I mean, monetizing some royalty from NGENLA. And I'll really let Adam give you the total financial picture, but the punchline is we've really rebalanced the company to a company that had a lot of risk in the clinical diagnostic business to one that has rebalance that to breakeven and profitable essentially hopefully this year. Other revenues, a lot of non-diluting financing, [indiscernible] with Merck, with government, with Regeneron and now a portfolio that is essentially very rich in inflection points over the next year, 1.5 years.

Great. Well, thanks for that great overview. So maybe just focusing on the diagnostic piece of the business first, and then we can spend the latter half of our conversation on more of the pipeline. As we think about the lab testing core business, can you talk about just how we should think about projection? How confident are you in terms of reaching that breakeven profitability milestone? And what are some of the goalposts along the way that investors and also analysts should really hone in on?

Sure. So for the clinical lab business, we've spent the last couple of years restructuring that business, as Elias talked about. Taking out nonprofitable segments of the business, segments of the business that had a high cost of delivery and really focused and concentrated on the New York, New Jersey markets for that clinical lab business. In addition, the 4Kscore is sold nationally through -- into urology practices, which is a high-margin test and has a potential for high growth as well this year, delivered over 15% growth in testing. That test by itself does about $25 million to $30 million, and we think that's just scratching the surface for what is potentially possible for growth there. So it's one of the main accelerants for profitability as well as top line growth. We guided for 2026 on a top line of about 3% to 5% of revenue growth off a base from 2025 of about $300 million of the business that remains. So it's still going to be a slow growth where our focus is not investing deeply into the commercial organization rather, we're going to continue to focus on operating efficiency and delivering profitability. It's been a few years since that business has generated profit. So that's where our key focus is. We feel very good about where we're at. We saw the fourth quarter continue to operate. We're still working through the financial close process, but we will have our update in a few weeks on that. Our guide is to deliver single-digit EBITDA on that business in 2026 with cash flow positive operations by the end of the year.

So just on the -- maybe just a little bit more color on 4Kscore adoption. What are you seeing on the ground? And maybe for those who don't fully know that the 4Kscore test, maybe just a background on that. And also, what is giving you a sense of, oh, this is trending in the right direction and this is something that could really be a growth lever for the testing business?

Sure. So the 4Kscore is a test that we developed a number of years ago that is -- was designed to assist urologists and physicians to identify patients that are at a high risk of having aggressive prostate cancer. So the PSA test is a great screening test, but it's not specific to identifying aggressive prostate cancer. So when you -- it's a simple blood test, you get a basically a score that takes in [indiscernible] plus markers plus some clinical information to use an algorithm to calculate the patient's risk. And it helps enrich essentially the urologist population for who should be biopsied. Because right now, there are still a lot of men that are being biopsy and rebiopsy that don't necessarily need to be because they've got either an indolent cancer or their PSA has been elevated for another reason. One of the things that we did in 2025, as we work with the FDA, it is an FDA clear test, and we work with the FDA to remove the requirement for a digital rectal exam. That was a little bit of a challenge in the marketplace where physicians, particularly in non-urology physicians were a little bit limited in their desire to do a DRE in order to use the test because that was a required component of the algorithm. So we worked with FDA to show them that the algorithmic change does not get influenced significantly enough to change the score and the result. And therefore, we think the potential for prescribing into the broader physician marketplaces there as well.

Great. Well, let's turn to pipeline. But before we do that, any questions from the audience? 5 So let's switch gear into the pipeline. The Merck partnered assets. Where are you in the process? And I guess, can you give us any color on where the asset is and what is it really the next milestone for the program?

So I can tell you that the Phase I is complete. And the Phase I involved testing of the antigens that we generated, but also some adjuvants and there were 2 adjuvants that were tested. So it involved about 250 patients thereabout. And the data is being analyzed fully, but what we understand is that both adjuvants are performing. And then the immunogenicity of the fundamental antigen is excellent. So this is what a company should take into account, looking at the different populations, so positivity or negativity and see how the immunogenicity persists over time. And hopefully, that will drive their decisions to go into Phase II and how to go into Phase II, which I expect to happen in the first quarter, hopefully.

Do you have a sense of the criteria that your partner is laying the groundwork on, okay, what -- this is the things that I need to line up or things that I want to see in a Phase I before greenlighting Phase II. Is it regulatory? Is it what components are perhaps the most important things?

Initially, the components is safety, obviously, how much reactivity do you get and on injecting, what you inject is there -- I mean a negative response. So that's number one. And from what I gather, that's fine. The second is what we call level of immunogenicity. When you have a patient, given a vaccine, you see -- you want to see the immune response of the patient because that's what protects the patient. So that measure is an exceptionally important one and we have references because there were vaccines against EBV that were developed in the past. And so there was a 70%, 75% efficacy with a GSK vaccine. So you want to exceed that by a significant amount. Those are the criteria that you immediately want to know when you look at immunogenicity of a patient population. Then you have the patients who have been exposed in the patients who have not been exposed. So you want to see how does the vaccine response or performs in both populations as a large company, you have a capital allocation strategy. You see, okay, I have a vaccine division. So that's in Merck's control. I can't tell you what those criteria are going to be for them at that time, given their strategy and requirement. The potential of the vaccine is as large as that of [ GARDASIL ] because remember, it's not just a monotonopliosis vaccine, but it's an anticancer vaccine because 200,000 patients develop cancer as a result of exposure to upside bar. And more importantly, what has really excited the field is the discovery that, in fact, [indiscernible] bar is probably the cause of multiple sclerosis. And because of the number of patients who develop multiple sclerosis, you can imagine the incentive it will be to do that. But that market analysis is something that needs to be done by them, not by us.

Are there any financial milestones are tied to the start of the Phase II? And how are you thinking about communicating to the street when they have to go [indiscernible]?

So there are significant milestones and as you know, we had an upfront of $50 million. And then when -- and then a complete financing of all the research between where we were where it needed to be for Phase I entry. At Phase I entry, we received $12.5 million. And that Phase II entry also, we will receive an amount I can't disclose, but you can imagine 12.5% [ to 50 ], so it's somewhere there.

So just turning to the ModeX platform. How do you think about this piece when it comes to, I guess, just strategically, right? You have partnerships -- now the most recent partnership is Regeneron. You have also have Merck layer on top. You also have a diagnostic piece that is -- that will reach breakeven. And I guess just the last piece is the clinical pipeline, right? You talk about balancing your portfolio in terms of not just risk, it's also just resources, right? So just kind of start there is how do you think about allocating resources? How do you think about prioritizing what you have to make sure that one of these assets are going to win?

That's a it's a great question. It's a question you ask yourself every day when you -- so number one, I think BARDA is funding $200 million of all of the antiviral programs, right? And they gave us the green light to go into Phase I now for the anti-COVID. We are presenting data to them for the entire flu antibody, flu A, flu B is a pen protection against flu. And we -- and they asked us to fund also the fundamental platform. And we've achieved really great results in terms of manufacturing, in terms of yield, so they're happy with that. So that portfolio is advancing nicely. We also have a great interest in antibody against HIV. And so there's a strategic relationship. But there, we really decided that because of the risk in developing just your own antivirals, we didn't want to do it without the support BARDA. Then on the other one, the other assets, you understand that we're going to have 5 products in the clinic, okay? Four of them are fully developed by us and paid by us, right? Now when you get into the clinic, your preclinical research is sort of overextended, right? And so what we decided to do was to find strategic partners like Regeneron so that can basically recycle our research capabilities through a partnership. Now in terms of going forward, we do have the in vivo CAR T, we want to continue to own fully. And so the big decision that you have is you say, okay, which assets you want to own fully and which ones you can partner to sustain the operation and sustain your research engine in your platform. And that's where we are. So we decided to keep 2001, 2003 and 2004 as fully owned assets. And obviously, the EBV is with Merck, and there will be candidates that we will develop this year through our research with Regeneron, which will become candidates to the portfolio, but then those will be shared assets. and played fully by Regeneron, I mean, all the cost is on the Regeneron side. Now in terms of the milestones, as you know, it depends on progression. And the amount of milestones with Regeneron was about $1.2 billion. And the timing is going to be determined by whether or not the candidate advances at which time we'll own a milestone, and we'll be able to tell you through that, whether or not it's progressing, right?

Just turning to 2001. We're going to get more Phase I -- well, Phase I data this year. What do you think we should look for in terms of obviously, safety? But just in terms of efficacy, where do you think the bar is so that we can have a good sense of what the next look like?

Well, in cancer trials, when you do a cancer trial, you have to understand that you're not taking patients who just developed their cancer, their patients were fifth line where everything else failed, right? And so you want to see some responses in that patient population, which is pretty much helpless at the time and we are seeing that. So that's why it gives us courage to go forward. Second is we have a molecule that can affect 14 different cancers depending on how much TROP2, how much CMAT, how many T cells are there. So that is the explorations we're going through now. Once you finish that phase, you know what dose you have, so far, there's no showstopper, no patient died or stopped medication for adverse events. And so we know that we are at a therapeutic dose with acceptable tolerability. Then the question is you maximize which cancer is it going to be the most responsive cancer to your therapy. And in this case, we think is going -- we've had good data maybe lung cancer, maybe liver tumors. We don't know. This is the Phase Ib. So you ask me, when do I know that you've progressed is when we go into Phase I this year. And we'll have to talk to the FDA about that.

I guess on the Phase I update, do you think we'll have a good sense or at least some rough sands of some level of dosing at optimal dose and also some sense of directionally, which indication that 2001 should fit in?

Right. You will. Well, look, we don't go into Phase Ib unless we see not only tolerability and safety, but also some signals of efficacy. But you can't really count on that because you're not -- with 23 patients dosed so far. And you can't have the statistics at that point to decide which tumor is the best. You need the second phase, the 1b to concentrate on the 1 or 2 tumors where your models and your data are telling you that these are the 2 most responsive tumors. That's what we're going to do.

Got it. Okay. How are you managing CRS as you escalate into the higher dose? Can you just talk about perhaps some of the tolerability profile that you've seen?

So it's really interesting. I mean the CRS is really managed at the clinical level by the oncologists who have that experience. And there are very typical protocols for doing that. This is not what it was 5 years ago when people didn't know. So we know how to do that when there is a CRS. The question really is how do you design your protocol to reduce the events of CRS and that's the experimentation that you do in the first phase. Why? Because if you have, let's say, your dose escalation, that gives you, okay, when do I see a CRS? Second, what we know is like in these drugs in T cell engagers, whether it's CD38 cell, any step dosing is important. In or you don't give the maximum dose day 1. You give a lower dose, it's called a first step and then you wait and then you get the second step. And that creates tolerance. And what we see is that once you do that, you get actually better less CRS symptoms and much more manageable symptoms. And then in some cases, you use steroids as a way of reducing the impact of CRS. So that is pretty known in the field. I don't think we're inventing anything here. It's pretty recognized that if you use different doses of different -- I mean, the step dosing and then intervals, you manage the intervals, you find a real window where you can get efficacy at very acceptable tolerability.

So over time, the CRS profile as you start to figure out the dosing interval, the occurrence of the CRS should moderate?

That's exactly right. And that's what Phase Ib is going to help us with because we will know what the protocol is, what's the interval of injections is the dose, the steps, and that really helps a lot. And the management of CRS is pretty standard right now. It's not what it used to be.

Right. So maybe just turning to 2003. Maybe just give us a broad sense of how you come about the trispecific targets.

You mean 2004?

2004. And how soon can we get a sense of the clinical profile?

Right. So the idea there is the following, is that many, many patients experienced reduced immune system function, right? And so it's almost like heart failure. And when you have heart failure, you say, okay, what do I need to do to get the function back. It's the same concept here. I think Gary does, my colleague, that there is an immune system failure syndrome that you see, especially in patients who have cancer or in patients who have immunosuppression, patients who are aged patients. So you know that there's a large population of patients that experienced the equivalent of heart failure, but in immune failure, right? And as you study the science, you realize that there are signals that are very, very key to maintaining the level of immune response that you need to be protected from cancer for pneumonias. What is it? I mean, often, when you have a cancer patient, you see the white count, the immune cells count go down at which time you need to stop through the trial, you can't really do anything. So we found that by combining the key 3 signals of immune function, one is CD3, which activates the T cells then CD28, which helps proliferate the T cell. And then 41BB, which really is the most potent factor to prolong the activity of the immune cell to prevent the exhaustion. So we found that from experimentation and from animal studies that when you do that and you use that through triple combination, you see an enormous increase in T cell circulation, B-cell circulation, stem cells and memory B cells. And that tells you that there is a complete sort of rejuvenation of the system. And that's why we're trying now in human patients, and we're observing very similar effects. So that's -- the idea here is that, to me, when I was about doing the R&D at Sanofi always focused on what is a molecule that will support that pipeline. So it's a pipeline in the molecule like the Dupixent. When we did [indiscernible] and when I was at Sanofi, the reason I was excited about is there's 14 indications. Now if you list the indications for the drug that you're referring to, they are like almost 25. So we think that this is really a pipeline in the drug. And hopefully, it will be safe and tolerable.

So in some way, is that -- I guess when you think about some of the other modalities, do you think that the reset of the immune system in some of these autoimmune diseases, do you think that is a much stronger reset in comparison? I mean, it's going to be hard to show, but do you think that there's a fundamental thesis that suggest that?

About the reset?

Yes, about reset.

It's clearly the case because when you look at an immune system response, it resets itself. When you have an infection, it goes in and then resets itself, by when it overcomes the infection, it's successful. Otherwise you die from sepsis. So there is an actual reset phenomenon. Now here, we're going to try to prove it in a very special population. One is the we're going to compare 2 populations in Phase I. One is the population of cancer patients who did not receive PD-1 or have had PD-1 in the past and patients who receive PD-1 but stop responding, right? And we're going to see how many of these patients recover their function. And I'm very optimistic that we're going to see, in fact, recovery of PD-1 efficacy. And we're going also to try the drug per se without any -- so we all know what the drug per se does to a patient who has reduced immune function was not seen PD-1s or anything. And then patients who are failed PD-1, right? They had PD-1, they did well and then they fall and then you want to rejuvenate at that point. So those are the 2 subpopulations. And the design of the trial is to give us that answer that you're asking for.

So do you think [indiscernible] does this -- do you think by itself, there could be that it will deliver efficacy? Or do you think that you want to have basically hit the on to reset than [indiscernible]? What is going to be?

Great questions, but here's the thing. You know that at your age not my viewers. But at our age, you're basically -- the incidence of cancer and pneumonia is very low, right? So you know that your immune system per se without any medication is defending you, right? So you know that there is an opportunity here to say I rejuvenate the immune system, and it will defend you against a whole series of mishaps, right? So that's the recovery, the fundamental function aspect of it. Then you can also see that when you treated with certain drugs and in certain conditions, the system is exhausted. It fought and failed. It's failing the battle. It's failing the control of the disease. And that's when you come in and you give them an infusion of supportive measures so that they can recover from the exhaustion, if you will. So those are the 2 different things. So you can see the utilization in the case of you have pathology already, and it helps you overcome the pathology, not go into sepsis or into difficult phases and save the patient that way, get a better outcome, but it also can be used as a booster of immunity in patients who have a naturally deficient immunity against many, many diseases. I mean you can imagine -- and this is the dream for us is that it would be able to really save patients from a range of diseases. It's not like one vaccine protecting you from one thing at a time. But we know that all the individuals do not respond well to vaccines. We have to increase the dose. This would be essentially a magnifier of the immune events.

Maybe we haven't heard much from Adam. So maybe turning to more of a financial question before we wrap up with 1 or 2 pipeline question. Just on the software purchase side, I think you still have about 140 or so million to go. What's your time line to execute on the rest? At what point -- is there a plan to execute on the stock buyback?

Yes. So we -- the Board put that program in place and extended it earlier this in '25 when we did the second transaction that dispose of more of the BioReference assets. So right now, as we go through our capital allocation program, we think about how much capital gets deployed to returning shareholder capital through either the stock buyback program, convertible debt repurchases or otherwise and balancing that with our clinical development pipeline and the performance of our underlying businesses. So we'll continue to be active. We were active in the fourth quarter and continue to pursue that. Last year, we did put in over $100 million into returning capital to shareholders, and we'll give a guide on how much we're going to use in February this year.

Just on the Regeneron partnership, it's still fairly early stage, but any color you can give us on potential milestones? What could we expect in the near term in terms of preclinical evidence that can give us a sense of what the next step looks like?

It's very simple. I mean, we have worked on the common research plan and the contribution of their part is basically the sequence, the DNA sequence of the antibodies that have been already in humans and already effective. So we know that. And then our job is to mount these sort of weapons on our platform and combine them in maybe quadri-specific penta-specific, whatever it takes to be able to attack the disease in a way that shows great results. Now in -- as I said at the beginning, our idea is always to combine things like the trispecific and so on. Why? Because to affect the disease process, you're going to need multiple points of intervention. So in this case, that's the dream, a joint dream. They thought that our product platform can do much better than what they have, we thought their antibodies can do much better than what we have. So we're coming together. And we're attacking very complex problem in metabolism and metabolism, I would say, #1 obesity and things like this where we have ideas about combination of therapies, which as you know, even you see it today. There's not a lot of -- you look at [indiscernible], they have a triagonist, they attack 3 things at the same time. And so we will do that. And then how would you know? You will know when we declare a candidate, and we're working very hard to try to declare candidates, meaning that they have developability, you can manufacture them. We have a lot of assays to look at the efficacy in vitro and in vivo animals. So we know exactly the road map to get to a candidate. And I hope that by the end of the year, beginning of early next year, we will have candidates and milestones paid, which we have to disclose.

Well, great. Thank you so much for your time today. And it's been wonderful to have you. Thank you.

Thank you.